Big Red House

With all the volatility in today’s real estate market, it’s more important than ever to understand the numbers before you buy. As my grandmother used to say, know how deep the pool is before you jump in! The right software can do just that (metaphorically speaking, of course), turning an often confusing and intimidating analysis into a straight-forward (and dare I say “fun”) exercise. The following case study looks at real estate investment analysis software, and how it can be used by investors—novice and professional, alike—to assess the financial viability and risk of a property.

This case study analyzes real world properties using real estate investment analysis software by GreyStone Analytics (full disclosure: I’m the founder and CEO of GreyStone Analytics, so please forgive any bias). The goal of the study is not to promote a particular software product, but to show how such analysis tools can help investors make profitable decisions.

The scenario: You have $25,000 you want to invest in real estate. You want to maximize your financial return while minimizing risk.

The problem: There are several properties to choose from in your area. How do you select the right one? You need an effective way to evaluate and compare investment financials.

The solution: Use real estate investment analysis software to quickly, simply and effectively evaluate the financial viability and risk of all your options.

About the Property

As the basis for this case study, I looked through real estate listings in my hometown of York, PA. There were several listings that met the criteria for the investor scenario described above. Let’s start by looking at one property in particular:

Property A (Codorus Manor):
Purchase Price: $159,900
Number of Units: 4
Total Monthly Rent: $2,125
Property Tax: $3,150
Other Operating Costs: $580/month (property management) + $100/month (maintenance)
Closing Costs: $3,000
Estimated Cost of Resale: 7.0% of sales price
Loan: 30-year fixed rate @ 6.000%

Of the $25,000 the investor has to invest, we assume $3,000 goes to closing costs and the remaining $22,000 is used as a down payment. That translates into a loan of $137,900 ($159,900 purchase price MINUS $22,000 down payment).

Before diving into the analysis, we need to make a few more assumptions regarding future revenue, costs and resale valuation. While it’s difficult to accurately predict future market trends, the GreyStone software automatically displays historical zip code-level market data to provide context for these assumptions. For instance, Property A is in the 17404 zip code. According to the software, the median rent for this zip code increased by an average annual rate of 2.7% (from 1990 to 2000). The user can modify the assumption based on his/her knowledge of the market, but for purposes of this analysis we’ll use the historical rate of 2.7%. We assume operating costs and taxes increase by 2.0% annually, and the property has an average vacancy rate of 3.0%.

Similarly, we must make assumptions regarding the property’s resale value. Most software packages allow you to choose from a few different valuation methodologies. The GreyStone software, for instance, allows you to estimate the property’s future value using any one of the following methods:

• Annual Appreciation
• Cap Rate (based on current year Net Operating Income)
• Cap Rate (based on next year Net Operating Income)
• Gross Rent Multiplier

For purposes of this example, we’ll use the annual appreciation method. Again, we’ll apply the historical market data from the software, which shows a 3.5% annual increase in median home value for the zip code.

While the software lets you go into much more detail (e.g., capital expenses, variable interest rates, interest only/balloon loans, refinancing, passive loss assumptions, unit level revenue/vacancy assumptions, reimbursable expenses, etc.), we’ll keep this example relatively simple.

The software walks the user through a set of input screens: Property, Loan, Revenue, and Costs. An example of the Property input screen is shown below (note, the Market Data in the lower-left corner is automatically generated by the software, based on the zip code entered by the user).

Your outdoor plants have worked hard for you all summer, making your yard a place you’re proud to call home. Properly winterizing your lawn and garden is an important step toward healthy soil, lush grass, and happy plants next year. Remember to take care of your outdoor accessories, including your lawn equipment, gardening tools, and all of your lawn and garden decor. A little time spent this autumn will make your gardening and landscaping efforts easier and more enjoyable next spring!

Let’s start with the easy jobs - First remember to store all of your lawn and garden decor including fragile planters, gazing balls, and your deck furniture. Unglazed terra cotta planters left filled with soil outside will often break in the freezing temperatures so it is best to clean them and place them in a storage area where they are protected from the elements.

Autumn is the time to find your birdfeeders and to start stocking your winter feeding pantry. Soon your many feathered friends will be flocking to your feeders for that nutritious morsel. Remember to keep your feeders full through the winter as the birds need reliable food sources through the winter months.

Now that you’ve done the easy tasks, let’s move on to the more mundane winterizing chores. Start by simply cleaning up the vegetable garden. After the first hard frost, remove the year’s annual plants and the dead vegetation. You can add this material to your compost pile, but make sure you’re not adding material from diseased or pest-infested plants. You’ll want to pull perennial weeds before you mulch your garden down for the winter.

The best part of fall landscape chores is planting the spring-blooming bulbs. Crocus, tulips, and daffodils are a beautiful addition to the early spring landscape.

In the yard there’s the major job of raking leaves. These are great either in the compost pile or as direct mulch on the garden. Perennial flowers may be smothered by a heavy layer of mulch, however. Also, wait to prune your trees until later in the winter.

After the ground freezes you can mulch your perennial flowers and newly planted trees. Certain shrubs will need to be wrapped in burlap to protect them from wind damage, sun scald, and other winter injury.

Moving on to the mechanical tasks of winterizing your lawn and garden - While you might try to procrastinate on these jobs until spring, you’ll be well rewarded for the maintenance you perform this fall. Drain the gas from your lawnmower and string trimmer. Actually it’s best to let your mowers and trimmers simply run out of fuel. If you don’t want to ‘waste’ that little bit of fuel, add a gas conditioner before the long winter. Be sure to follow directions. Also, take the same care with your gardening equipment such as your rotary tiller.

Clean all of your landscaping equipment before you store it away for the long, cold winter. Wash with soap and water, clean the air filter, and change the oil. You’ll find that first lawn mowing job in the spring a little bit easier if you take time to sharpen the blades now. You can protect that freshly sharpened blade by applying a little spray oil to the blades. You can also apply light spray oil to other moving parts such as cables and the throttle controls.

Lastly, drain all of the water from the garden hoses and turn off the taps. Be sure to store your insecticides, herbicides, and fertilizers in a safe storage area that will not freeze. Make sure these materials are kept away from children and pets!

Power tools are very expensive and when said and done all the tools can add up to a big expense. So when buying a power tool you want to not only make sure you are getting the most for your dollar, but you also want to make sure you are buying the right power tool. You don’t want to buy a tool that is pure overkill on power or even worst, underpowered. That’s why when you buy a power tool you want to look at the important aspects of the tools and sometimes this can be confusing. One important question to ask yourself is, “What kind of user am I?” Once you find this out choosing the right brand is a lot easier. After you decided what kind of user you are you need to look at some important aspects such as corded vs. cordless, amps and horsepower, return policies and more.

Kind of User

A power tool is an extension of your hands, like Edward Scissor Hands. If you have the right tool and a quality tool, you can create or fix just about anything. One important question you need to ask yourself is, “What kind of user am I?” If you are a light homeowner user, you can get away with a less expensive brand such as Black and Decker. A light homeowner user probably will not put a lot of use and abuse on the tools and power is not a big deal. Remember more power usually means more weight in the tool. Black and Decker designs their tools for the light homeowner use. They are quality built and inexpensive.

If you are not a light home owner use, but aren’t a serious user, Craftsman makes an exceptional tool. Craftsman actually has other companies make these tools for them; you can see their manufactures through the source code. Craftsman makes a good quality tool that has a lot of features and good power. Plus they have a great return policy if something happens or you are dissatisfied with the tool.

If you are a serious home user or contractor, go with a good brand name such as Milwaukee, Dewalt, Bosch, Porter Cable or Makita. These manufactures pride themselves on making the best tool. They are constantly putting money into their research and development process to make these tools even better. These professional power tools cost more, but they are made with better technology and materials. They also have a better design that causes less fatigue on the user. Not to mention that these tools are made to last a life time.

Do you know what’s going on in your home when you’re away at work? Do you have a reliable home security system that can relieve you of your worries and concerns when someone is breaking into your home when you’re away? If you already have a home security system in place, how reliable and steadfast is it? Has anyone ever broken into your home even with your current home security system in place? Do you know that you can now install a home security system that utilizes the Internet so that the home security system can actually alert you of unusual activities at home?

That’s how far the home security system technology has advanced. If you’re still having one of those old home security systems that blares a siren whenever there’s an intruder, then you’re not doing the best you can to protect your home. How many times have you heard one of those sirens cut through the silence of the night and ignored it because the siren is turned off about a minute later? Intruders who break into homes know how to turn off the old types of home security systems and they can usually break through any of those home security systems easily.

With the advancement of technology, home security systems have developed into more than just an electronic alarm system that detects opened windows or doors. Conventional home security systems have sensors built into the home security units that detect interruption in the flow of electricity. Whenever the home security system detects the interruptions, it will either let out a deafening siren or activate strobe lights to attract attention.

But have you ever thought about this – what if others choose to ignore the sirens and lights?

What you really need is a home security system that will silently alert guards and you of the activities in the home. Combining the advancement of the technology used to create and develop home security systems together with the Internet, the home security system will silently send signals of the intrusion to a call center run by the home security company. It will also send a message to your cell phone or make a call using your telephone line to you to alert you of a possible break in. With the home security system’s silent method of alerting various parties, the intruder is not alerted but YOU are. Therefore, it will give the police and the relevant authorities enough time to act and catch the intruders in action.

In fact, the latest home security systems in the market today allow you to activate and deactivate your home security system via the Internet or through your phone. This is what I call a TOTAL convenience to home security systems.

Buying a house in the current housing market is tough. Becoming a first-time house buyer is very tough. Recent research by the Chartered Institute of Housing Cymru (CIH) ( www.cih.org/ ) has show just how difficult it has become for people in Wales aged 20-39 to get a foothold on the housing ladder, as the gap between house prices and wages increases.

The study showed that young working households in Wales currently earn on average £27,039, however the cost of a two bedroom house is almost four times that at £107,864. In some rural areas the situation is even worse, with house prices around five times the average household income. The most expensive areas according to the survey were Monmouthshire (£147,084), Cardiff (£142,773) and the Vale of Glamorgan (£138,019).

A representative of the CIH said “Young households are being forced out of the property market across the country … It is particularly bad in areas where wages and salaries are low yet demand for homes is high.”

However the news is not all bad for first-time buyers in Wales, as the Royal Bank of Scotland has announced that the Rhondda town of Ferndale has been crowned the most desirable investment spot for new home buyers in the its first-time buyer property index.

A spokesperson from The Royal Bank of Scotland said, “The index reveals that for savvy house hunters, the most crucial aspects determining future return on investment are the low house price to high income ratio and the recent house price growth rate of the area, alongside any regeneration prospects.”

Ferndale topped the chart despite earlier this year gaining the dubious distinction of coming bottom in a house price league of 1,414 Welsh and English towns based on prices since 2000.

In the wake of the recent market upturn in the town, it is now boasting a large number of “for sale” and “sold” signs and looking to attract more first-time buyers.

According to The Royal Bank of Scotland, “Buying in an up-and-coming property hotspot can help first-time buyers climb the ladder faster to their ideal property or location in the future”.

Housing organization Rightmove believe that with property prices in Wales bucking the current UK decline in house prices and outstripping the rest of Britain by more 7% and correcting a previous 6% price slump, the housing market in Wales is starting to look brighter for sellers.

Rightmove also declared last month that almost 120,000 sellers in England and Wales cut their asking price in the four weeks up to 6th August and stated that this reflected that it is currently a buyers’ market as, “There is too much unsold property still available to expect anything other than a continuation of static asking prices this year.”

Rightmove said that with house prices doubling over the last five or six years and mortgage rates having also recently risen, the only affordable option for some people is to rent property rather than buying.

Isabelle Kassam writing for Moneynet ( www.moneynet.co.uk ) believes that since, “Interest rates fell recently but mortgage lenders have been slow to pass the reduction on to consumers. Borrowers who are holding out for an even lower fixed rate are playing an anxious waiting game.”

The situation does not look good for those who are presently in rented accommodation hoping for the climate in the housing market to get better, as the Royal Institution for Chartered Surveyors (RICS) has revealed that rents have risen at their fastest rate for four years. This is rubbing salt into the wounds of would-be first-time buyers, as tenant demand is rising on flats as prospective first-time buyers struggle to afford their first property. A vicious circle has been created that is affecting many prospective buyers. While not being able to currently afford to buy, the higher rents are preventing the hopeful first-time buyers from saving enough to get out of the rented accommodation trap.

Mr Shipside of Rightmove indicated that those being hurt most, “really is first-time buyers, and there is a lot of demand for flats. Two thirds of tenants are actually under 35, so they are the people that are being hurt by rising house prices and rising mortgage rates.”

Irrespective of where you are moving to, moving is made so much easier by doing some pre move planning.

When you moving it is a great time to itemize all of your belongings and throw out or sell the items that you no longer plan to use or want to keep. There is probably hundreds as everyone always has some. You can have yard sale or donate to a local charities.

if you intend on user a moving company then ask plenty of questions rates and results. If friends or neighbors have moved recently you might like to see if they will recommend a company.

One of the most important issues is availability and whether the company has a truck that will fit your belongings and whether they are free to move you on the day you need to move. Ask if their price is inclusive of boxes, tape, marking pens, dollies, and packing paper. Also ask if their quote includes travelling insurance.

Other questions to oaks include:

1) Do they have membership to the American Moving and Storage Association

2) How long have they been in business?

3) Can they give you referrals?

4) Can they provide a detailed and itemized statement of to be performed?

Moving companies make their charges based on weight, distance, and services provided. You should ask if your quote includes any additional charges for person-hours, packing materials, travel time, and any waiting time (if you can’t get into the property straight away). Ask what sort of payment methods the movers will accept and find out if you need to take out your own insurance.

Before selecting any insurance option, understand whether you will be reimbursed based on the extent of the damage and the item’s depreciated value, or on your cost to replace the item. Also, be sure to check your homeowner’s insurance for any moving damage coverage.

Finding your dream home starts with you. That’s a statement that you will have to remember throughout your search for your dream home. The reason is because throughout your journey of finding your dream home, you will find yourself being derailed one time too many. Everyone will want to give you advice on where is the best location, who’s the better realtor, who is better contractor, etc. so, remember, it’s YOUR dream home. When in doubt, refer to yourself. Better yet, browse through magazines and newspapers and cut out pictures of homes that you like, areas that you fancy and paste it into a special ‘My dream home project’ book. This way, you can’t go wrong.

The first thing to do is to determine the area where you want to get a house in. Your dream home should not be too far away from your work place, schools, family members, etc…unless you want it to be, of course. Get a real estate agent to help you buy the house off the original owner. Some websites actually allow you to key in an area code and they will give you a whole list of houses on sale in that area. If your dream house is listed, you’re in luck. They will assign a realtor to work with you on buying your dream home.

The next step towards buying your dream home is, of course, financing. If you have the cash, you can buy your dream home instantly. Nobody rejects cash! Well, unless the original owner wishes to keep the home because of sentimental reasons. If you’re like the rest of us, you may not have enough money to buy your dream home in cash. So, start researching on an affordable and most viable home loan.

The process between signing the agreement to getting the loan to having the keys to your dream home is a long way. This is a good time for you to find a contractor to design and construct your dream home for you. The best way to find a suitable contractor to design your dream home is to ask around – there’s nothing quite like referrals. Referrals mean they are satisfied with the services that have been provided by the contractor.

Designing and constructing your dream home is both a painful and pleasurable experience! I mean, you’re literally designing a home that you hope to live in for a couple of years, maybe even for a lifetime! It’s exciting as you watch every single inch of the house transform from an empty hollow shell into the home of your dreams! The artistic input from the designer, your own personal preferences all combine together – and viola! You have a dream home to live in.

This is also the time to discuss the inside of your home – would you like it to be cozy or clean and organized? Is there any particular style preference you think you should tell your designer/contractor? Your dream home should be consistent in all areas of the home – but they can have different characteristics. For example, exotic Asian look for the bedroom, French home look in the kitchen and the fun, jovial and cheery look for the kids’ bedrooms.

The most important thing to consider is the comfort level and practicality of your dream home.

Feng Shui is an ancient Chinese philosophy. It is the study of living in harmony and prosperity with nature. Feng Shui means literally “wind water”. It is a form of geomancy, trying to understand the relationships between nature and ourselves so that we may live in harmony within our environment. It is based upon the simple thought that our lives are deeply affected by our physical and emotional environment.

One of our chief environments is our house, where we spend most of our time. Feng Shui has advice and solutions to offer, in order to let the “chi”, the energy, flow smoothly around the house. Curtains and windows are the most prominent features of our homes. Fabrics, color, material, window arrangement, yes, all these may affect your homes chi. Let’s see how to improve it.

· Pull the curtains back during daytime to allow sunlight to lighten your house and give the area positive energy.

· Keep your curtains closed at night. Don’t leave your windows exposed into night as it is considered to bring bad luck.

· Blinds and curtain rings should be of natural material. The most beneficial is wood. Avoid plastic by all means!

· Curtains should be large enough to cover the window and long enough to reach the floor.

· Curtains should have curves to them. When drawn together there should be enough fabric hanging to form pleats and folds.

· Make sure that curtains open and close easily.

· Curtains that hang limply each side of a window are considered bad Feng Shui.

· Keep your curtains and windows clean in order to allow the chi to come inside fresh and clean.

· Match your curtains with the seasons to freshen up yours and your chis’ mood. Use heavy fabrics for winter and lighter fabrics for summer. Utilize warm colours for wintertime and light happy colours for spring and summertime. Choose shades of green at spring, shades of red, orange and pink at summer, white, grey and metallic colours for autumn and shades of blue in winter.

· Windows are best when opening outwards. If a window opens inwards make sure it doesn’t face the West, which is the direction that signifies death or ending. In that case, block negative chi with an outward facing mirror or a plant with round leaves.

· Octagonal and arched windows are considered good Feng Shui.

You can also utilize colours in your curtains to change colours in each room of your house, adjusting it correctly to specific energies each room should have. Have matching pairs in your bedroom and colours that invite love such as pink or green. For the diving room use red to keep guests energized and excited. For kitchens and playrooms orange and yellow is refreshing and revitalizing. Green is a calming colour ideal for living rooms. Purple signifies richness and transformation, which makes it ideal for spiritual rooms.

Waterbeds are a very popular bedroom option because they provide such a gorgeous sleep and total rest for the entire slumber. Waterbeds are a revolution in sleeping because as soon as you lie on a waterbed you will notice a big difference from your normal bed. A waterbed feels a lot different from your traditional inner spring mattress style bed.

In any event though, the waterbeds of today are not the wavy, sea sick style waterbeds that you might perceive them as. Waterbeds have changed for the better and are now a very popular bedding option. Today’s waterbed is totally comfortable and completely shapes your body - structure and size - so that you get the optimum slumber. When you lie on a new modern day waterbed you will find it to be so comfortable that you will not want to move. It quite simply is far more luxurious than a standard inner spring bed.

With the recent manufacture of “wave less” waterbeds in the bedding industry, people who take the bold step of purchasing a waterbed are now receiving a far improved level of sleep allowing them to have more energy and improved health on a daily basis. Bedding manufacturers have responded to the changing demands of consumers and their feedback has changed bedding options forever. Nights of tossing and turning are long gone. You should note that when you own a waterbed there is some maintenance that is required. However, once you have had a good nights sleep in the waterbed, you won’t give the maintenance a second thought.

There are a wide variety of parts and supplies that you can find over the Internet for your waterbed. When buying them over the Internet you can also generally find them at better then retail prices. Bedding stores online offer items such as waterbed heaters, drain fill kits, frames and headboards. Many of the parts and supplies that are available from online bedding supply stores can also be very useful to you, especially if you intend to install and maintain the waterbed yourself without professional assistance. But apart from the maintenance perspective you can also have fun decorating your waterbed to match in with you bedroom decor. You can purchase any number of quilts, throw cushions and towels from these specialty bedding suppliers.

If you take care of your waterbed and conduct regular maintenance on it then your waterbed will be able to serve you for many years to come. The waterbed parts and supplies that you can purchase will assist you in doing this - ensuring years of sound sleeping.

In a perfect world your master bedroom should be a haven in which you and your spouse can retreat from the world and enjoy each other. Unfortunately, the same type of clutter and dust that invades every other room in your house can spill over into your master bedroom.

One of the easiest ways to spiffy up your master bedroom on a daily basis is make the bed. It’s a simple as that. If you aren’t someone who routinely makes the bed you’ll be amazed how much better a room will look and how quickly you’ll be hooked. A great facelift for a bedroom is also a simple one, it’s called a “bed in a bag”. These sets come with comforters, coordinating sheets, pillow shams and bed skirts. If you have a visible bathroom attached to the master bedroom it’s nice to carry your color theme through to the bathroom too.

Clear off the top of your dressers. As with all flat surfaces these will tend to gather papers too. If you don’t have a home office where you keep bills and other important papers, get an organizer. A good way to organize bills and papers is in an accordion folder. They can be organized alphabetically or by month. Just get them off your dresser!

Now onto the vanity. It’s time to part with what you really don’t use. Bottles left sitting anywhere just become dust collectors and if you haven’t used that perfume in the past two years, you probably aren’t going to. You can pick up some small and nifty storage boxes and use one for lipstick, one for eye makeup, and one for foundation. It’s a good time to go through all your make up and get rid of what’s old.

If you don’t already have one, get a laundry basket for your room. These can also be decorative items. Get those clothes up off the floor. Get a shoe rack for your closet and put your shoes in the closet when you change clothes after you get home from work. Shoes left lying around in a bedroom don’t just look bad - they can be a health hazard. More than one person has hurt him or herself tripping over shoes on the way to the bathroom during the night.

Now that we’ve beautified the bed and are going to keep it made, cleared off the tops of the dressers and organized the papers. Picked up the shoes and dirty clothes from off the floor it’s time to run the vacuum.