Archive for May, 2010
Appraisal – Valuation of Subsidized Housing
May 29th, 2010 | 
Author: Appraisal – Valuation of Subsidized Housing
The purpose of this article is to analyze valuation methodology for several atypical types of apartments. Various circumstances and situations can cause an apartment complex to have above-or below-market rental rates, occupancy rates and operating expenses. This analysis examines the following two situations:
1. low-income subsidized apartments, which receive above-market rental rates from HUD or another government agency, and
2. projects that are part of the Low Income Housing Tax Credit (LIHTC) program.
The LIHTC program was established by the U.S. Congress to encourage development of affordable housing in economically disadvantaged areas. Project developers receive a tax credit for following the guidelines established by the program. They typically sell these credits to Fortune 500 corporations for 45 percent to 60 percent of the total project cost, excluding land.
The first step in the valuation process is analyzing market value definitions. The following is the definition from the Texas Property Tax Code, Section 1.04 (7): market value means the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:
a. exposed for sale in the open market with a reasonable time for the seller to find a purchaser,
b. both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions to its use, and
c. both the seller and the purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.
Section (b) of the Texas Property Tax Code further requires: the market value of property shall be determined by the application of generally accepted appraisal techniques, and the same or similar appraisal techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon the individual characteristics that affect the property’s market value.
The definition of market value, according to the 10th edition of The Appraisal of Real Estate published in 1992 by the Appraisal Institute, is: market value is the most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.
The term which requires further review in the above definition is “knowledgeably.” Is the purchaser knowledgeable regarding the effort required to comply with subsidized housing program requirements and tenants? Does he consider the effort to be rent for real estate or compensation for services? Does the purchaser of an LIHTC project understand that maximum rents are now established for at least 15 years based on deed restrictions? (LIHTC deed restrictions are now required for 30 years in Texas and most other states.)
Fee simple estate is defined in the third edition of the Dictionary of Real Estate Appraisal published by the Appraisal Institute as: absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat.
The practice in Texas is to base the assessed value on the value of the fee simple estate as opposed to the leased fee estate. This analysis is based on valuation of the fee simple estate instead of the leased fee estate.
The definition of leased fee estate in the third edition of the Dictionary of Real Estate Appraisal is: an ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease.
The primary difference between the fee simple estate and the leased fee estate is that the tenant and landlord are each bound by commitments to pay rent and allow use of the property for a term. The contract rent agreed to between landlord and tenant may or may not be equal to market rent. For example, if a landlord entered into a 30-year lease for rent of %5 per square foot 15 years ago (when market rent was %5 per square foot) and the current market rent is %10 per square foot, the tenant has a substantial advantage. The tenant has a leasehold estate which may or may not have value depending on the term of the lease, the contract rent and market rent.
The Dictionary of Real Estate Appraisal defines leasehold estate as the interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.
Conversely, if the tenant agreed to a rental rate of %15 per square foot in a strong market 10 years ago, and is committed to pay that rent for another 10 years, there is a substantial advantage to the landlord, and the tenant has a leasehold estate with a negative value. Practice in Texas is to establish the assessed value based on the fee simple estate instead of the leased fee estate. Therefore, the relevant criteria for determining market value includes market rent, market expenses, market occupancy and market derived capitalization rates. If a taxpayer made a poor business decision 10 years ago and has substantially below-market rent, it is inequitable for the taxing entities to reduce their ad valorem tax due to the bad business decision of the property owner. Conversely, if a property owner made a fortuitous or wise business decision and entered into an above-market lease, it is not appropriate to collect an above-average level of ad valorem tax from him because of his luck or prudence.
Market rent is defined by the third edition of the Dictionary of Real Estate Appraisal as: the rental income that a property would most probably command in the open market; indicated by current rents paid and asked for comparable space as of the date of appraisal.
Market rent is the compensation paid for the use of the real estate. It should not include compensation paid for factors other than the use of the real estate such as additional services which are not typically provided.
The next step in this process is to analyze valuation of properties which participate in subsidized programs which receive above-market rental rates. The final section will address valuation of projects in the LIHTC program.
Valuation of Subsidized Housing
This analysis will consider both the income and the sales comparison approaches to value. The cost approach is not utilized since it would provide similar results after calculating external obsolescence due to differences in rental rates.
Income Approach:
Apartment owners who participate in subsidized housing programs may or may not receive above-market rental rates. For many years, HUD offered above-market rental rates as an inducement to property owners to participate in the program. There are two reasons for HUD paying an above-market rental rate:
1. to compensate for the inconvenience of dealing with a bureaucratic government program which mandates detailed inspections not typically required in the private market; and
2. to compensate for working with residents who tend to be at the lowest socioeconomic level in our society.
It has not been unusual for HUD to pay contract rent of %0.70 to %0.80 per square foot per month for subsidized housing projects, even though the market rent for competing projects might only be %0.45 to % 0.50 per square foot per month. The rent and sales comparables used in this analysis are located in a neighborhood characterized by income levels in the bottom quartile of the Houston area, minimal new construction of residential or commercial buildings for 25 years and heterogeneous levels of quality and appeal. Some sections, such as Riverside, have experienced gentrification, but other areas are marked by poorly maintained properties. Both the market rent projects and the subsidized rent projects are located in the area south of downtown Houston, bound by 288 to the west, Interstate-45 to the east, and Almeda-Genoa to the south. Consider the following tables which list rental rates for projects which do not participate in a subsidy program (market rent projects) and projects which do participate in a subsidized rent program:
http://www.poconnor.com/article.asp?id=48
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3 Surefire Ways To Sell Your Homes On Steroids, While Other Investors Can’t Give Away Their Homes
3 Surefire Ways To Sell Your Homes On Steroids, While Other Investors Can’t Give Away Their Homes
So you need to sell your home?
This article is exactly what you need to do, to sell your home or create a bunch of leads of individuals, who are HOT prospects to buy your home.
Before, I share my 3 steroid ideas on selling your homes; you need to take a few simple steps…
PREPARATION
1. You need to locate and interview an aggressive Mortgage Broker, very knowledgeable, with a GREAT TRACK RECORD of closing deals, especially difficult ones.
I cannot stress enough the importance, of having a great broker on your power team. I own and run, the R.E.I.A. (real estate investor club / www.tcreia.com) in my area, so whenever I hear a member, say they got a difficult deal closed, I always make sure to inquire for an introduction, because this might be the broker who can get most of my deals funded.
Remember, you can sell a home ten times, if you can’t get the buyer funded by a mortgage company…who cares, your wasting your time.
2. You should make some effort in fixing the home up; even if it’s a hunker, I’d still get the lawn cut and maybe throw a coat of paint on the property. You’d be amazed at the improvement to even an ugly property, with a simple coat of paint on the front of the property.
3. Go to your local community financing office or local grant and home buyer bond office. For example in my area (South Florida and Palm Beach County), both counties run a FREE class for your buyers on becoming a first time home buyer and when they take the class, they then get a voucher from the county, giving them %10,000.00 toward the purchase of their first home. The best part is sometimes the loans are even forgiven, when certain criteria are met by the new homeowner.
LET’S DO SOME MARKETING ON STEROIDS
Let’s be frank, your going to have to be more aggressive, smarter and persistent than 99%PRCTG% of all your homes neighbors.
There’s no magic pill, but this has been working for both my students and me, for the last year, and we’re always testing and fine-tuning the system.
And I can tell you, that while every other investor, is sitting with their heads in their butts, my students and I are able to sell all of our properties, during one of the worst RE slowdowns in history, and this is in South Florida, one of the most depressed markets in the Country,
1. Buyer First System
Basically you create your own buyers. The best example would be converting a lifetime renter into the American Dream a homeowner. Just so happens, that while becoming the American Dream, they also end up buying your home.
Very simply, create a flyer or postcard, and market to communities of people who would be a great prospect to buy your home.
Who doesn’t want to be a homeowner in America? Nobody, that’s a stupid question, everyone wants to be a homeowner, and it’s bred into us as kids.
The real key is you must understand, that these individuals renting, most are under the impression they CAN’T get a mortgage. They might have tried in the past, and we’re shutdown and embarrassed, only to believe they would live the rest of their lives as a RENTER.
These are the best leads you can focus on, because it’s not a matter of IF they’ll buy your home, they will, the key is can you get them funded or is it the right house for them, financially affordable.
I must also share with you, this strategy will take some of your time and initiative, because their is hand holding involved, mortgage brokers, and helping them get any government help in First time homebuyer money.
2. Fish in some one else’s pond!
Go where the most prospects are for your home. I’ll give you some examples, you need to go where the most and the best prospects are to buy your home, assuming it’s a good deal (priced right, and there’s still built-in equity for your buyer).
If you have any contacts or a friend of a friend, now is the time for using it and your expectations are for these contacts to open doors for you, to their sphere of influence.
For Example, one of my students, Courtney, leveraged a contact he had, his cousin (she was a middle school teacher), and she introduced him into the schools, where it just happened that the schools are in the same area, that he was selling a great starter home.
He sold the home that he needed to the most, but then, once word spread of what he was able to do, the rest of the teachers came out of everywhere, wanting him to help them. He’s since helping the 1st teacher, sold another 5 homes, to 5 different teachers, earning him over %30,000.00 for this simple, leveraged relationship.
So what ponds can you fish in, with your marketing? Think about whom you know (friends, family members, and associates)?
BEST: Teachers, Cops, Firefighters, Government Employees, Bus Drivers, Department of Transportation. (These careers are loved by lenders, they mostly have good credit, and their income is basically guaranteed and very stable.)
GOOD: Large local employers: Supermarkets, Local telephone company (Bell South), Home Depot, Wal-Mart, etc.
3. Use the Internet…
You should definitely have an individual website for your property.
You can get a simple site built for under %100.00.
? Use www.elance.com or www.rentacoder.com : Two great sites, for getting your site created, they are both similar to EBay. You post an auction about your project (your home website), and then companies bid on your job, and you get to see samples of their work and read all their feedback, after you decided who wins your job, you choose a winner. Oh by the way, both of these services cost you nothing, their completely FREE. ? Take some pictures with a digital camera of your home and you’ll end up emailing them to the site designer, to post on your site. (good example, is www.735airoso.com) ? Treat this as an online, digital brochure, basically being able to do whatever you can conceive. ? You can take a video of the home, with you walking through the home and then have it placed on your site. If you’re intimidated by video, like I was at first, don’t be, because your web site designer can do it for you, very easily.
Now, when ever you talk to someone on the phone or in person, they can quickly look at your property, on the web. This will be the best %100.00 you’ll ever spend on marketing of your home.
4. BONUS: Promote and hold your own, “First Time Homebuyer Seminar”.
Before you say anything, I don’t expect you to be Tony Robbins, if you can get 10 to 15 people in a room, your going to be successful.
We shared this strategy with my mentoring students, and it’s been working excellent for them, from the results I’ve been receiving back from my future millionaires. In fact, one of my students from Miami, Alex, has been executing this strategy like gangbusters.
Before writing this article, I received permission from Alex to share some of his feedback with you, on the Homebuyer seminars that have been very successful for him.
He’s now doing 1 a month, every month. Also, since he’s has a few successfully under his belt, he’s now selling sponsorship space to his seminars, to Mortgage brokers, credit repair companies, and he’s even worked out a joint venture with two different realtors, whom pay him for every property they sell to one of his prospects.
If you’re curious how he’s filling the room, all he’s doing is as follows…
-Flyers in Parking lots, I.E. Wal-Mart, Publix Supermarkets, and local churches.
-Free Advertising on www.craigslist.com
-He uses bandit style signs on the side of the road, 18 x 24, corrugated plastic signs.
-He’s even put up a website that the attendees, can pre-register for the seminar. (Sorry, he didn’t want me giving out the site, for obvious reasons)
-He also is giving them an ethical bribe for attending the seminar; he gives them a few nooks and tapes just for making it to the event. The best part is he received the books for free on the internet, and he’s also allowed to give them away for free and even rebrand them as his own books.
3 Tips to Staging the Inside of Your Home Like a Pro
3 Tips to Staging the Inside of Your Home Like a Pro
Are you considering putting your house up for sale, but not sure where to start? Afraid it will take too long to sell, or that you won?t get the price you want? Think about ?staging? your home, or in other words, setting the scene for immediate buyer interest in your property.
To be really effective, you need to look at both the outside and the inside of your home. Here are 3 tips to get you started with the inside of your home:
1. De-clutter. This is one of the most important things you can do. It might be easier to think of de-cluttering like this ? you?re moving anyway, so why not start packing now?
Pack up everything you don?t need and store the boxes out of sight in the garage (or consider temporarily renting a small storage locker).
2. Organize your closets – put similar colors together, pants together, skirts together, shirts together etc. Why? Because it will make the closets look bigger. (Really.) An organized closet appears bigger, and you want your closets to look as spacious as possible.
3. Make your home look like a model. You want to de-personalize as much as possible so potential buyers can imagine themselves and their own belongings occupying the space in your house. That means minimizing ? putting away everything you don?t need or use. Clear off kitchen counters as much as possible ? stash all those appliances you don?t use, and put miscellaneous small clutter in a few attractive baskets or boxes
And the biggest tip of all? Imagine yourself as a potential buyer looking at your property for the very first time. What impressions are you getting? Would YOU buy your house? What would you like to see changed before you put an offer on your house?
And don?t worry about spending several thousand dollars to get your house ready to sell ? you?ll get it all back when your house sells. Proper staging helps you sell your house in a shorter time and at the price you want.
You Can Take the Home Loan Advantage
If you have been trying to take advantage of the low prices of real estate, but have been unable to because banks have turned down your application for a home loan, don’t give up. There are lenders who are willing to give home loans, even to people who have less than sterling credit ratings. In fact, you can even get them to compete for your business, if you know where to look.
The place to look is online. Advantage specializes in finding the best possible loans for you, no matter what your financial circumstances are. This website has a reputation for unimpeachable integrity. They are there to inform and help you, not just take your money. That’s why they have extensive informational pages on their website in addition to the capacity to get you comparative quotes.
Many loan websites are fully automated. This is fine for things like auto insurance. When it comes to mortgages, though, you need the one-on-one, personal touch. There is too much at stake and you need professional, personal attention. After you have read the Advantage Tutorials and informed yourself about all aspects of home loans, contact them directly and their representative will get back to you to discuss your personal needs with you in person.
Whether you have good credit or bad, you can take the Home Loan Advantage and get a loan at the most attractive mortgage rate possible. Contact Advantage today and your home ownership dreams may be realized tomorrow.
An alternative to using an estate agent to sell your property
An alternative to using an estate agent to sell your property
Traditionally, anyone with a house to sell in the U.K. would use an Estate Agent. As they were ranked 2nd in a Radio 4 poll of ?least respected workers? (M.P.?s were 1st!), for many people they are seen as a necessary evil.
A small minority of people manage to sell their house privately by doing their own advertising and putting up their own For Sale board, but as their property does not appear in the Estate Agent?s press adverts or websites, this is very much a hit and miss affair.
Even when a sale is secured, the legal system in England & Wales means that until contracts are exchanged ? typically many weeks later ? the sale can fall through. In fact one in three agreed sales do not complete, meaning that the sale process has to start all over again.
For anyone relocating or emigrating this is frustrating and annoying as plans have to be put on hold. For people with financial difficulties or in danger of having their house repossessed, it can be very serious indeed.
A realistic alternative to Estate Agents
At last there is an alternative to using an Estate Agent. Using a specialist property-buying company offers the speed and certainty lacking if selling on the open market through an Estate Agent.
Companies like A Quick Sale (http://www.aquicksale.co.uk ) are now offering a service that more and more people see as a better alternative than waiting and hoping for an elusive buyer. They will normally make an offer to buy a property within a few days, completing at a date to suit you, so that people can move on with their lives.
So, what?s the catch? Well, the main one is that they will be looking to buy the property at a reduction from the open market value. How much of a reduction often depends on the type and size of property but is likely to be at least 10%PRCTG%.
The other thing to watch out for is that some of these companies charge an upfront valuation fee of several hundred pounds. Whilst this is usually refundable if you go ahead and sell to them, it is quite possible that their offer on your property will be unacceptable to you, leaving you out of pocket!
Questions to ask
If the speed and certainty of selling to a property-buying company appeals to you, what do you need to look out for?
Probably the first question to ask is ? will it cost me anything to get an offer on my property? A national house buying company featured on Watchdog last year after many complaints fro people who had paid a valuation fee and then offered much less than their property was worth.
(see http://www.bbc.co.uk/watchdog/reports/home/home_20051122_2.shtml)
You wouldn?t expect to pay an Estate Agent for a valuation, so why pay these companies?
The next question most people need answering is ? can I rely on this company? Can they fit around me? These companies should be asking you about your timescales and deadlines and tailoring a solution around these. Look carefully at their literature and website to see if they are flexible and offer a range of solutions. It is also a good idea to ask them for examples or testimonials from previous customers.
So, if you have a property to sell, before you call an Estate Agent, it might be worth checking out a couple of these companies who can offer you a quick sale.
Disclaimer:
All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986.
You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.
Are FSBO’s Worth The Time & Effort?
Are FSBO’s Worth The Time & Effort?
Many people have asked whether or not FSBO’s are really worth the time and effort involved in the sale. The simple answer is, Yes! It stands to reason that the FSBO industry is based on some amount of success or else it would never have grown to the size it currently is. And the industry is growing in size every year. Part of the reason for this phenomena is the fact that home sellers are becoming more and more educated on the involved process and as such are demanding a level of service that many real estate agents are not willing to provide, or able to provide due to a high number of clients.
The resolution to this problem has been the education of sellers and the drive to eliminate the middle man. For years people were convinced the the only way to sell a home was to contact their local realtor and then wait for the offers. But what if that agent was not providing enough service to sell the home in a timely manner? Was there any real way to ensure that this was being done? It can be hard to trust someone in such a way when nothing appears to be happening. But you can trust yourself right? So, why not give yourself the tools you need to become your own real estate agent?
The part that cannot be stressed enough is the need to educate yourself on the process before you undertake the selling of your own home. Start investigating the rules and regulations concerning real estate contracts and conveyance. Find out about liens and easements and inspections. In selling your own home there are a lot of hats that you will have to wear. Of course it never hurts to get legal advice and guidance from a lawyer educated in real estate law. There is also an abundance of information available online to help guide your education. The web is a great resource for almost every aspect of the home sale process so take the time to investigate these things to the full extent. Good luck!