What’s next…

Congratulations, your offer has been accepted! The next week or so is going to be very busy for you as the buyer.

Let’s assume you’ve paid for an option period. During that period you will conduct your ‘due diligence’ in regards to finding out all you can about this house.  It will help you to ensure you’re making a wise purchase. Below are some of the items you’ll want to accomplish or at least consider during your option period. Your realtor® will assist you during this time and help you decide which you should absolutely do and which might not be necessary.  Many of these items will depend on the age and condition of the home you are buying.

Review the Seller’s Disclosure – Most sellers are required to complete a Seller’s Disclosure. Be sure to read it and ask questions about any items that concern you. For example, if the seller discloses that there is an issue with the plumbing, probe a little deeper for an explanation. It could be something as minor as a leaking faucet or something major.

Get a home inspection – A home inspection will give you more detailed information about the overall condition of the home. During a home inspection, a qualified licensed inspector takes an in-depth, unbiased look at your potential new home and evaluates it based on a set of standards determined by the State of Texas.

The home inspector will look at the physical condition of the house as it relates to its structure, construction and mechanical systems. The inspector will identify items that need to be repaired or replaced.

It is important to know that an inspector will only report conditions that are present and visible at the time of the inspection. Property conditions change with time and use. Inspectors will not move furniture or appliances, permanent coverings or other obstructions. The inspector cannot guarantee future performance of an item.

You should accompany the inspector during the inspection and address any questions about the inspection directly to the inspector.

Get a Wood Destroying Insect Inspection – Some lenders require a Wood Destroying Insect (WDI) Inspection report. This is a written report detailing an inspection for wood-destroying insect activity. It must be prepared by a trained and licensed inspector. The WDI report covers basic information such as the scope of the inspection, address of the property, areas inaccessible to the inspection and any visible evidence of an infestation.  It will also detail conditions that are conducive to an infestation or evidence of any previous treatment.

A WDI report is not a structural damage report. It only reports visible activity relating to infestation. It is not a guarantee of the absence of wood-destroying insects.

FHA and VA will require termite treatments if any active infestation is found.

Get a HVAC inspection – HVAC (Heating, Ventilation and Air Conditioning) Inspections review the heating and cooling system of a home. The heating and cooling components will be reviewed for functionality and safety issues. The HVAC inspection report should include a description of the system by its key components and a statement to repair, evaluate, or monitor any important issues.

Speak to your insurance agent – You’ll want to make sure that your new home is insurable.  Contact your insurance agent and let them know about your intention to buy a new home.  He/she will ask you about the property and then will most likely send out someone to look at the house to see its condition.  

Your realtor® will be with you every step of the way during this option period.  Don’t be afraid to ask questions of your realtor® and the inspectors.  The more information you gather during your option period, the easier your decision will be to continue with the transaction or to exercise your unrestricted right to terminate the contract. 

Tax Advantages to Owning Student Housing

Let me say right up front that I am not a CPA, so you will naturally want to consult with your tax preparation expert annually before filing your return. On the other hand, I've been in the College Station rental property ownership arena for many years, so I have a reasonably good working knowledge of this subject matter. This blog is only intended for you to gain a basic understanding of how owning a student home in College Station will provide tax advantages for the average person.

Owning rental property does indeed provide tax advantages in the form of expense deductions. When we talk about deductions, we are talking about the ability to offset or lower our ordinary income. What does this mean exactly? Let's say that you earn a $100,000 salary per year in your job as an insurance agent and that is the sole source of your income. Expenses related to owning a rental property may be deducted so that you pay taxes on a lower amount. If you have $10k of rental property expense related losses, then you will pay taxes on only $90,000 of your insurance salary and not the full $100,000. If you are in the 28% tax bracket, then you pay $2800 less in income taxes for the year! That is over $230/ month that your rental property is putting back in your pocket!

What are some of these items which typically qualify as rental property deductible expenses? This list would include, but is not limited to:

-Property taxes

-Depreciation

-Mortgage Interest on loan

-Home owners Insurance

-Lawn Mowing and Landscaping

-Supplies- vacuum cleaner, windex, paper towels, cleaning agents etc

-Cleaning and Maintenance

-Repairs

-Business trip mileage to inspect your rental property

-You may even be able to hire your son or daughter to manage the property

So let's see how all of this would be applicable to an investment property that you may purchase in the future. In this example let's assume a $150,000 purchase price on a house which rents for $1500/ month. Here's the way things could potentially look on your next income tax return.

$18,000 Annual Rental Income (12 months x $1500/mo rent)

(8950) Interest paid on loan

(3300) Annual property taxes

(5450) Depreciation

(600) Home owners insurance

(1200) Lawn and landscape maintenance

(1080) Property management

(3700) Cleaning and maintenance

(2800) Repairs

Supplies

($10,580} annual loss

This $10,580 loss on paper only, would be used to offset or lower your ordinary income. If you earned$100,000 in your career job, you would only pay taxes on $89,420 instead of the full $100,000.

Consider this...

Be prepared – If you don’t already have one, get a pre-approval letter from a local lender.  Why local?  Realtors are familiar with lenders in their market and know whether or not they can get the deal done. 

Gather your information – Ask your realtor to prepare a Buyer’s Market Analysis for you.  This will give you a snapshot of comparable homes and an idea of what they’ve been selling for in the last six months. 

Make sure you understand your local market –particularly if you are coming from out of state.  Ask your realtor what the list price to sales price ratio is in your market.  For the last several years in Bryan/College Station, on average, most homes sold for between 97-100% of list price.   That number crept slightly downward in the last 12 months to 96-100% of list price.   

Knowing the list price/sales price ratio will help you understand the range that you can expect the seller to agree to.

National statistics don’t always reflect your local market.  There are other factors that can make your local market very different from the national market.  For example, properties close to Texas A&M University, that are suitable for student housing, are in great demand.   Generally they don’t last on the market very long and if priced aggressively, sell within days of coming on the market.   If you are in the market for one of these homes, you need to act quickly and expect to pay asking price or higher.

Other factors

There are many factors that a seller considers besides the price you are offering.

Cash offer versus one requiring financing – a cash deal is usually a quick transaction.  A cash transaction can close within days in comparison to one subject to financing which usually takes 30 to 45 days to close.   Cash deals have fewer requirements.  A lender will always require a survey and appraisal for a financed transaction.  These take time to acquire and add to closing costs.  Since there is no lender involved in a cash transaction neither a survey nor appraisal is required saving time and money for both buyer and seller.

Closing Date – Most transactions close within 30-45 days for a transaction requiring financing.  A seller may need this time to get moved so asking for a quicker closing might be an issue.  On the other hand if you are asking for a closing date two to three months out, this may also be problematic to a seller.  They’ll have added expenses during that time such as continuing to make house payments, maintaining the lawn, utilities, etc.  In addition, a lot can happen in two months that could negatively affect the transaction. 

Closing costs – if you need the seller to help you with closing costs, you need to be prepared to come closer to their asking price.

Amount of earnest money – You need to have some skin in the game.  The amount of earnest money you put up indicates to the seller your seriousness.  Be prepared to put up more earnest money if you are asking the seller for a closing date beyond 45 days or if you have other contingencies.

Contingency to sell another home - If you are looking to buy a home and you need to sell your home first – get your home on the market and under contract before making offers on a new home!  Asking a seller to consider an offer that is contingent upon the sale of your home is inherently a weaker offer.  If your current home is not on the market, the contingency offer is an extremely weak one.  

Days on market – if the house has only been on the market a very short time – don’t expect the seller to entertain a low offer. Don’t assume because a house has been on the market a long time that the seller is desperate. The sluggish economy for the last few years has caused longer days on market.

Creating a Win-Win situation - Real estate transactions can be very emotional.   Because of this, it is important that everyone in the transaction feels like he/she has won something through the negotiations. 

Here at Texas A&M we have a tradition before the football games, where all the fans meet at midnight the night before to get ready for the game. Sometimes as many as 30,000 people show up to practice their yells for the game the next day. Here is a glimpse of that experience and the #2 activity on the bucket list. Each of these activities were voted in by followers on my facebook. If you have any new bucket list ideas for the Texas A&M area, stay tuned for the next voting session and maybe you can come be a part of the activity with me on camera. Enjoy and be ready to send in your votes on the next one.

We are rolling out a blog series on TerrenceMurphy.com called Aggieland Bucket List! This series will entail all of the unique things about Bryan / College Station that you should experience while you're here. We have already had many emails and suggestions sent in, so keep them coming; more bucket list activities will be up on the blog soon. This blog is an Aggie game day experience from my eyes at Kyle Field in front of 87,000 fans. Thanks for your time and enjoy the video! If you know any friends or family who may be buying in the next few months, I would appreciate the referral.

It’s amazing how much this small town and university has grown since I arrived in 2001 as a freshman. Once I graduated in 2005, I moved up north for ball, retired and moved back in 2008. Once I moved back I have noticed Aggieland has been growing at rapid pace, and there is no end in sight. The new A&M Health Science Center, HEB Town Center, Scott & White Hospitals, and many other developments in Bryan/ College Station show you why this once undeveloped community is gaining national recognition by many different publications. This place is unique and one-of-a-kind, but none of this would be possible without that 5,200 acre campus and the students. Here are some stats on how the students impact Bryan / College Station:

• $144 million - Dollars spent locally by visitors (up $6 million from 2009)
• $464 million - Dollars spent locally by students ( up $39 million from 2009)
• $886 million - Payroll to local employees (up $4 million from 2009)
• $3.7 billion - Impact of Texas A&M students on Brazos County (up $213 million from 2009)
• SEC conference change - who knows???

-Info from BCS Economic Outlook Conference Spring 2011

LISTING INFORMATION MLS: 69044 Bedrooms: 5 Full Baths: 4 Half Baths: 0 Sq ft: 2928 Lot Size: 5 Taxes: $0.00

Great 5 acre property w/ pond off Wellborn Rd w/ easy access to HEB and Texas A&M, but out far enough to have the country feel. Two homes and a 30x40 worshop w/ 16ft garage door. 1st Victorian style home is on pier and beam w/ 3bed/2bath around 1,800 sq ft. It is two stories w/ wrap around porch. 2nd Cottage style home is around 1,100 sq ft w/ custom hickory cabinets, vaulted ceilings, and more.Septic redone see attachments. Great property for a bed & breakfast, or subdivide and develop the land.

I'm often asked if this is a good time to buy a home. Some clients are concerned that home prices may fall further than they have already. They are assuming that the best course of action is to wait for the bottom in the market and then buy. The problem with this approach is that you don't know where the bottom is until you see it in the rear view mirror, meaning until you've missed it!

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have gone up in the last six months, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.