Saturday, October 9, 2010
The First Time Landlord: Determining Rent Price
As a landlord, determining how much to charge for rent can be a difficult prospect. Setting a realistic market rent will be crucial to making the most out of your investment, regardless of whether you're renting out your former primary residence following a move, leasing an investment property or renting out a vacation home on a seasonal/weekly basis. If you set rent too low you may end up leaving money on the table. On the other hand, if you ask too much in rent you risk having the property stay vacant for long stretches or seeing high tenant turnover.
Calculate your cost
Before you begin determining how much you can or want to charge in rent, it's prudent to first gauge your total cost incurred from owning and renting the home. Your total cost will include mortgage payments, maintenance expenditures, any paid utilities and professional services you may require (such as property management, tax help or legal consultation). Avoid being too conservative when estimating potential maintenance and repair costs.
The cost of owning and renting out may not directly dictate the rent you charge in all cases, but it will serve as a vital baseline value which you can refer to as you get closer to setting a rent price.
Potential rental rates based on home value
Professional real estate investors often determine rental prices by looking at the total value of the home. A common rule of thumb is that for homes up to about $100,000, you can charge approximately 1.1% of the home's value in rent ($1,100/month). With increasing home values, the percentage you can realistically charge will become smaller as the rental pool becomes more limited. For example, if your home is valued at $400,000, you may only be able to charge .75% of its value, or $3000/month.
In general, calculating rent in this fashion is mostly a useful theoretical exercise that can provide some framework for you to work within. While in some cases you may be able to price rent purely based on the current value of your home, in most cases the realities of the local rental market will play a far greater role in determining how much rent you can realistically hope to charge.
Understanding the renters in your market
Before investigating actual rental rates in your market, it's important to actually understand the nature of the rental market and area renters. The needs of renters differ from those of potential buyers. For example, most renters will not be as interested as buyers in top of the line fixtures or brightly painted interior walls, because most lease agreements will prevent the tenant from changing such elements to meet their own taste. Things that will interest many renters include sturdy carpet that will resist wear and tear, appliances in good working order and plenty of storage space.
In addition, rental markets are often defined on a highly local level - notice how rental classified are often divided by neighborhood or sub neighborhood. The needs and wants of renters in your local area will greatly influence how much rent they are willing to pay for your particular property.
For example, a five-bedroom luxury house with attached three-car garage may have a tough time commanding high rent if located in a neighborhood whose rental demographic is predominantly students, single professionals or young couples. By the same token, a modestly sized studio or cottage will not rent for nearly as much in a suburban area popular with families and pet owners.
Establishing market price
To truly devise a competitive rent price, you will want to thoroughly research the prevailing rents of comparable homes. Start by scanning newspaper ads or online classifieds such as Craigslist to assess the price range for similar units in your area. Make sure to sample listings that are of comparable size and amenities, and which are near enough to your home to fall under the local conditions of your micro-market.
Once you locate some comparable properties, visit them to better compare their amenities, location, condition and level of maintenance with your own home. Rental listings often vary a great deal from what is advertised to what you see in person when looking over the property, and often this discrepancy can help explain drastic differences in advertised rent. Visiting three or four homes in person will give you the best idea of how your home stacks up against the competition.
Long term strategy
Before you settle on a final rental price for your property, take some time to consider what your overall goals are with the rental unit. Are you focused on making a profit from the unit or recouping as much of the ownership cost as possible? If so, you may decide to charge rent on the high end of the market, at the risk of experiencing higher tenant turnover or longer periods of vacancy between occupants.
If instead your goal is to ensure steady rental income from the unit, minimizing periods of vacancy, you will likely want have a pricing strategy more geared towards attracting long term tenants.
Eric P. Egeland, SFR, CDPE, e-PRO
Monday, October 4, 2010
Friday, September 24, 2010
Eric P. Egeland, SFR, CDPE, e-PRO
Thursday, September 23, 2010
Thursday, September 16, 2010
For Sale: 3BR/1+1BA Single Family House in Deerfield, IL, $140,000
Eric P. Egeland, SFR, CDPE, e-PRO
Friday, September 3, 2010
Eric P. Egeland, SFR, CDPE, e-PRO
Monday, May 31, 2010
The Dangers of an Unreasonable Asking Price
One of the most common and costly mistakes made by sellers is setting an unrealistically high asking price. Every seller wants to receive the highest closing price possible for their house, but losing sight of fair market value can have serious repercussions.
In some cases a lack of objectivity results in overpricing the home, other sellers may subscribe to the theory that pricing high initially leaves room to negotiate lower later. Overpricing from the outset could actually force you to end up settling for a lower price than you would have received by setting a realistic asking price based on market research.
Common Results of Overpricing
Fewer "Eyes" on Your Listing - Mispricing your home can prevent it from ever being seen by a certain percentage of potential buyers who might otherwise be interested in your home. Savvy buyers today research the local market even before acquiring an agent. Buyers will search available listings both online and offline in real estate publications, and in most cases they will set a price range to limit the listings they review. If your home is outside of their range even by a few thousand dollars, it may not be on the buyer's radar.
Most buyers will then hire a specialized buyer's agent, and together they will develop a strategy to evaluate homes that match the buyer's needs within their acceptable price range. Occasionally an agent will provide information on a home above the buyer's maximum price point, but rarely will they stray too far above that boundary.
Lack of Showings - Agents who work with homebuyers will know local market conditions and the listing prices of comparable homes. If they feel your home is overpriced, they will be reluctant to show your home to their clients for fear of wasting their time.
Helping Competing Listings - It may not be your first thought, but overpricing for your home for the market can actually help the competition. Your home's higher asking price will make other nearby homes of equivalent size and quality look like steals in comparison. Astute selling agents for other properties will use the price gap between your home and their own as a further selling point of their listings.
Stagnation and Stigmatization - If your home is priced higher than what buyers in your market are willing to pay, it runs the risk of sitting on the market for a longer period. The longer your home sits on the market, the more likely it will become stigmatized as "overpriced" in the real estate community. Once that happens, removing the stigma and restoring interest in your home can be a difficult task. Even dropping the price later will not have the same level of impact as the initial, negative, impression of your listing.
Tough Negotiations - A high listing price can be a warning flag that buyers use for leverage during the negotiation process. If the asking price seems high without home improvements or features to warrant the difference, buyers may assume that you are either A) not well informed about the market, B) not a highly motivated seller, C) have a need for money (perhaps forced by a move to a higher-priced area), or D) are simply creating some bargaining room. If the buyer believes any of these, they are likely to fish to determine how low of a price you will accept.
On the other hand, if your home has languished on the market as a result of a high price, buyers may believe you are becoming desperate. Interested buyers will make lower offers as a result.
Appraisal Problems - Should you be fortunate enough to find a motivated buyer willing to pay your overestimated asking price, you still run the risk of having the deal fall apart prior to closing. Most buyers will use some kind of financing to pay for their home purchase, and every lender requires an appraisal of your home's value.
The appraiser will review your home in person to assess its value based on similar homes that have sold (usually within the last six months). If the appraised value is below the agreed selling price, the lender will only approve a loan for the lower amount. You may be forced to reduce the selling price or risk having the deal collapse, and your home return to the open market.
Overpricing and Today's Market
Today the tendency to overprice relative to the current market can be even more tempting. Home prices have dropped since the high peaks in the summer of 2006, and as a result many are in denial about the current market value of their home. Homeowners who bought within the past five or six years in particularly may be overly influenced by the purchase price they paid during the real estate boom.
This comes at time when overpricing couldn't be a worse strategy. There is a smaller pool of highly motivated buyers, and today's buyers tend to be well educated about the market. Without the assumption of price appreciation, few buyers are willing to gamble and overpay for a home. In addition, credit tightening has reduced both the number of buyers who can qualify for a mortgage as well as the size of the mortgages available.
Creating a Pricing Plan
When pricing your home, the best strategy is to remain objective and compare your home closely to similar properties on the market. Take the opportunity to visit open houses and pay attention to recent sales in your area. Are you more focused on selling quickly, or on receiving the highest possible selling price? Is the price you have in mind reasonable when compared with what other homes are asking for and selling for?
Priced Too High: Corrections
If your home has been sitting on the market with few offers or showings to its name, consider whether or not it is priced correctly. Review recent sales of comparable listings, especially those that have sold since your home went on the market. Another method is to ask agents who have shown your property for feedback they received from their clients. Have buyers who looked at your home in person purchased other homes in the area instead?
Acting quickly to adjust the asking price is the best way to keep as much of your marketing momentum as possible. Depending on how long your listing has been on the market, additional marketing may be needed to help repair some of the "damage" done to the reputation of your home's listing at the higher price. In some cases, you may be forced to slightly under price your listing to create additional interest.
Eric P. Egeland, SFR, CDPE, e-PRO
Sunday, March 28, 2010
Re-Painting? Know the Essentials
Painting interior walls is relatively easy and cheap way to transform the rooms of your home while protecting overall resale value. Aside from adding personality and drama, re-painting protects the surface from moisture and fading. Here are a few things to know before you start planning your DIY masterpiece.
Sheen/Luster - A paint's "sheen" classifies its degree of shine. Flat paint is the dullest of the sheens and is best uses in low activity areas such as hallways and dining rooms, or on ceilings. Eggshell (sometimes "low-luster") has more shine that flat and is easier to wash. Eggshell finishes are appropriate for bedrooms and living rooms. Semigloss and glossy sheens reflect light for a brighter look. Both are durable and easy to wash, although glossy sheens will highlight any imperfections on a wall or surface. Semigloss sheens finishes are good choices for bathrooms and kitchens, while glossy finishes are often reserved for trim, railings, cabinetry and doors.
Quality - While it may be tempting to save money by buying cheaper paint, you will likely end up paying for it in the long run. High quality paint has higher pigment levels and a higher percentage of titanium dioxide, which increases coverage ability and improves durability. Their heavier bodies will go on smoother with less splattering and fewer applications, and will resist fading over time.
Color - Darker hues are known to add interest or warmth to a room, while lighter colors can open up a room and make it seem more spacious. Painting one wall with a rich color can add new drama to the space. In terms of durability, colors such as white, brown tend to fade less than brighter greens, yellows and blues.
Testing - Paint chips and samples can help you whittle down color options, but the best test of a paint color is to see the hue on the intended surface during different lighting conditions. Purchase quart or sample sizes of your top paint choices to get the best feel for the paint's affect on its surroundings.
Amount - 1 gallon of paint will typically cover 350 square feet of surface. Multiply the width of your walls by the height of the room to determine the total square footage you need to cover. Some manufacturers provide coverage calculators that will help you determine how many gallons of paint you will need.
Preparation - Paint adheres best to clean, uniform walls. Scrape clear any flaking paint and spackle in holes and cracks. Wash walls with a trisodium phosphate solution. Use plenty of painter's tape on baseboards, moldings and windowpanes. Applying a primer will conceal stains and ensure uniform color and absorption.
Equipment - Latex paints are best used with nylon brushes (or rollers), while natural brushes 9or rollers) work best for oil-based paint. 3-4 inch wall brushes work well on large, flat surfaces. Angled sash brushes are ideal for detailed areas, and trim brushes are perfect for doors and window frames. Paint rollers work well on rough or textured surfaces. The rougher the surface, the longer the roller nap should be.
Prepping For a Last-Minute Showing
It's nearly impossible to keep your home in a "show-ready" state day in and day out. In many cases you may find that your home will be shown to a prospective buyer with very little advance notice.
Even if you're keeping things as clutter-free as possible, a little preparation for the actual showing is probably in order. Here are some short-term ways to get your home looking and feeling its best.
Step 1: Cleaning Frenzy
- Scrub tile in the kitchen and bathrooms.
- Thoroughly clean hardwood floors.
- Vacuum carpets. If time permits, rent a steam cleaner to shampoo carpets, particularly in high traffic areas.
- Dust all wood furniture, TV screens and computer monitors.
- Clear counters of all clutter. If time permits, move unnecessary appliances and decorating touches into storage areas.
- Clear the kitchen sink and counters of all dirty dishes.
- Pick up all dirty laundry. Avoid over-filling any open air hampers - laundry is better kept out of sight inside your washer or dryer.
- Remove stains from bathtubs, toilets and sinks.
Step 2: Critical Eye Test
- After doing the first round of cleaning, take a walk through the house with the perspective of a buyer. Look for clutter, excess furniture or highly personal touches that might turn off prospective buyers.
- Try taking pictures of main rooms with a digital camera for an "instant review".
Step 3: Curb Appeal Checkup
- Sweep the entryway, porch and walkways.
- Mow and water the lawn.
- Store any toys or garden equipment.
- Clean up pet droppings.
- Clean gutters and downspouts.
- Add potted plants to the porch or deck.
Step 4: Closing Touches
- Turn on all lights.
- Open drapes and blinds.
- Open windows to let in fresh air.
- Burn scented candles or open jars of lightly scented potpourri. If you don't have either on hand, you can always bake cookies (the oldest trick in the book) or simmer a few drops of vanilla extract on the stove.
- Turn off all TV's, stereos and computers.
- If possible, relocate pets to a friend or neighbor's home during the showing.
- Clean the litter box thoroughly to rid your home of smells. If pets can be temporarily relocated, remove the litter box entirely.
- Hang fresh towels in every bathroom.
- Put fresh liquid soap or bar soap in each bathroom.
- Remove rugs to showcase hardwood floors.
- Put out fresh flowers and fill candy dishes.
Eric P. Egeland, SFR, CDPE, e-PRO
Saturday, March 6, 2010
Real Estate Terminology for First Timers
First time buyers face a learning curve that can feel overwhelming if the right level of support and education is not available. It's not enough to merely educate one's self on buying strategies, mortgage application, and closing process. Buyers must also navigate through a sea of unfamiliar legalese, home building lingo and real estate specific jargon.
The glossary below is by no means complete and is no substitute for the careful guidance of an experienced real estate agent, but it can serve as a good primer for consumers getting their feet wet in real estate for the first time.
Agency - The relationship of trust that exists between buyers or sellers and their agents. The agency is formed via a written contract.
Amortization - The process of paying the principal and the interest on a mortgage through regularly scheduled payments.
Appraised Value - A licensed appraiser's opinion of the current market value of a property.
Assessed Value - A tax assessor's determination of the value of a home in order to calculate a tax base.
Breezeway - A roofed passage way with open sides.
Capital improvement - Any improvement that extends the life or increases the value of a piece of property.
Comparable sales - Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."
Contingency - A provision of an agreement that keeps the agreement from being fully legally binding until a certain condition is met. One example is a buyer's contractual right to obtain a professional home inspection before purchasing the home.
Dry Rot - Decay of seasoned wood caused by fungus.
Earnest Money Deposit - A deposit made by the potential home buyer as evidence of good faith that he or she is serious about buying the house.
Easement - A right or interest in the use of the land of another which entitles the holder to some use, privilege or benefit, such as to place power lines, pipe lines or roads.
Abbreviations in Listing Advertisements
The agent shorthand found in listing ads can baffle the average consumer. Below are some of the most common acronyms and abbreviations found on listings.
AGP - Above Ground Pool
ATT - Attached
CA, CAC -Central Air Conditioning
CH/BW - Chain Link/Barbed Wire
EIK - Eat-in-kitchen
FDR - Formal dining room
FP - Fireplace
FSBO - For Sale By Owner
Gar - Garage
HDW/HWF/Hdwd - Hardwood Floors
HVAC - Heating, Ventilation and Air Conditioning
IGP - In-ground pool
MLS - Multiple Listing Service
NC - New construction
PSF - Per Square Foot
SFD - Single Family Detached
Upr - Upper floor
w/d - washer/dryer
wic - walk-in-closet
Egress - The exit point from a property.
Escrow - An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
Energy Star - A joint program through the U.S. Environmental Protection Agency and the U.S. Department of Energy that sets energy efficiency guidelines for products, homes and businesses.
Equity - A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
Fixtures - Those parts of a property affixed to structures or land, usually in such a manner that they cannot be independently moved without damage to themselves or the property housing supporting or pertinent to them. Fixtures are usually included in a sale and commonly include but are not limited to items such as carpets and awnings.
Full Disclosure - In real estate, revealing all the known facts which may affect the decision of a buyer or tenant. A broker must disclose identified defects in the property for sale or lease.
Green building - Also known as sustainable building or environmental building, this definition varies depending on the agency or group. Generally it means to construct a building to the highest environmental standards by minimizing the use of energy, water and materials. A green building, for example, might have skylights, recycled building materials and solar panels.
Ingress - The entry point to a property.
Lien - A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.
MLS (Multiple Listing Service) - An MLS is an organization that collects, compiles and distributes information about homes listed for sale by its members, who are real estate brokers. MLS's are local or regional.
Private mortgage insurance (PMI) - Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI when the amount borrowed exceeds 80% of the purchase price or home's value.
Plat - A plan, map or chart of a tract or town site dividing a parcel of land into lots.
Subdivision - An area of land laid out and separated into lots, blocks, and building sites, and in which public facilities such as streets, alleys, parks, and easements for public utilities are also planned.
Sweat equity - used to describe the contribution made to a project by people who contribute their time and effort.
Title - A legal document evidencing a person's right to or ownership of a property.
Title company - A company that specializes in examining and insuring titles to real estate.
Eric P. Egeland, SFR, CDPE, e-PRO
Friday, February 26, 2010
What is a short sale?
A Short Sale is when the lender agrees to accept less than what’s owed on a mortgage that is secured by real estate via a sale of the property to a third party. With this agreement, the lender releases the borrower from the mortgage, thereby preventing foreclosure.
What are the benefits of a short sale to the homeowner?
The seller wins by avoiding foreclosure by selling their home before the foreclosure auction even if they owe more than its worth. If they were to sell the house the traditional way with a realtor without a short sale, typically they would have to bring tens of thousands of dollars to the closing to sell their own home. This is not an option for them because they are in foreclosure and don’t have any money. The lender typically will pay closing costs & commissions in a Short Sale to avoid foreclosure.....the Banks do not want to own your home.
What are the benefits to the lender?
The lender wins because they are getting some of their bad debt paid off. You see, when a lender has delinquent loans on their books, it affects how much money they can lend out in new loans because they are regulated by the FDIC. So the more bad loans they can get rid of, the more good loans they can then go ahead and acquire.
Also by taking a home to auction, they can lose tens of thousands of dollars.
So it’s a huge cost savings to them to do a short sale before the auction occurs.
What are the benefits to the buyer?
The buyer can get a great price, sometimes below market value.
Eric is a Certified Distressed Property Expert and also has his NAR Short Sales and Foreclosure Resource Certification. He has the knowledge & training to help.
For more detailed information on short sales please email or call 847.337.7090
Eric P. Egeland
Primary IL Service Areas: Libertyville 60048, Wheeling 60090, Deerfield 60015, Buffalo Grove 60089, Vernon Hills 600061,Lincolnshire 60069, Chicago Lincoln Park 60614 Lakeview 60657, West Town 60622, Bucktown-Wicker Park 60622, Long Grove 60047, Arlington Heights 60005, 60004, Prospect Heights 60070, Palatine 60067, 60074, Lake Zurich 60047, Lake Forest 60045, Northbrook 60062, Rolling Meadows 60008, Elk Grove Village 60007, Mount Prospect 60056, Highwood 60040, Libertyville 60048, Mettawa 60048 60045, Green Oaks 60048, Highland Park 60035, Glenview 60026 60025, Mundelein 60060, Fort Sheridan 60037, Des Plaines 60016 60018, Park Ridge 60068, Schaumburg 60173, Lake Bluff 60044, Barrington 60010 60011, Wilmette 60091, Winnetka 60093, Hoffman Estates 60179, Golf 60029, Niles 60714, Morton Grove 60053, Grayslake 60030, Gurnee 60031,Kenilworth 60043, Skokie 60077, Round Lake 60073, Round Lake Beach 60073, Kildeer 60047, Hawthorn Woods 60047, Deer Park 60047, Prairie View 60069, Glencoe 60022, Kenilworth 60043, Inverness 60010, Wauconda 60084, Johnsburg 60050, Schaumburg 60195, Algonquin 60102, Lisle 60532, Wadsworth 60083, Elmhurst 60126, Crystal Lake 60012, Lake in the Hills 60156, Antioch 60002, Saint Charles 60174, Downers Grove 60515, Hinsdale 60521 60522, Western Springs 60558, Clarendon Hills 60514, La Grange 60525, Frankfort 60423, Mokena 60448, Wheaton 60187, Bannockburn 60015, Riverwoods 60015, Burr Ridge 60527, Lake County, Cook County, McHenry County, DuPage County
If you need service in an area that is not listed above please contact us & we may be able to accommodate.
Monday, February 22, 2010
Buyers and Sellers Benefit from REALTOR® Expertise in Distressed Sales
Eric P. Egeland with RE/MAX SUBURBAN has earned the nationally recognized Short Sales and Foreclosure Resource certification. The National Association of REALTORS® offers the SFR certification to REALTORS® who want to help both buyers and sellers navigate these complicated transactions, as demand for professional expertise with distressed sales grows.
According to a recent NAR survey, nearly one-third of all existing homes sold recently were either short sales or foreclosures. For many real estate professionals, short sales and foreclosures are the new “traditional” transaction. REALTORS® who have earned the SFR certification know how to help sellers maneuver the complexities of short sales as well as help buyers pursue short sale and foreclosure opportunities.
“As leading advocates for homeownership, REALTORS® believe that any family that loses its home to foreclosure is one family too many, but unfortunately, there are situations in which people just cannot afford to keep their homes, and a foreclosure or a short sale results,” said 2009 NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Foreclosures and short sales can offer opportunities for home buyers and benefit the larger community, as well, but it’s extremely important to have the help of a real estate professional like a REALTOR® who has earned the SFR certification for these kinds of purchases.”
The certification program includes training on how to qualify sellers for short sales, negotiate with lenders, protect buyers, and limit risk, and provides resources to help REALTORS® stay current on national and state-specific information as the market for these distressed properties evolves. To earn the SFR certification, REALTORS are required to take one core course and three Webinars. For more information about the SFR certification, visit www.REALTORSFR.org or call 1-877-510-7855.