Newlot Homes

05/24/2023

Is an ADU a Good Investment for You?

When navigating the real estate market as a seller, it’s always a good idea to know what could raise the value of your property. There are numerous ways property owners will increase their home’s worth, with one of the more common and popular choices being adding an Accessory Dwelling Unit (ADU) to the home. An ADU is a secondary housing unit built on the property, designed to accompany the primary home. ADUs go by many other common names, such as in-law units, tiny houses, or granny flats. As a seller looking to elevate the value of your home, it doesn’t hurt to explore ADU options for your property.

As an increasingly popular way of making the most out of your property sale, the additional housing could prove to be just the thing your property needs to generate interest. But that doesn’t mean you should move forward with an ADU without the proper research first. Read on to learn whether or not an ADU adds value to your home and how much value an ADU adds to determine whether or not an ADU is a good investment for you.

Does an ADU add value to your home?

An ADU can definitely add value to your home, but that isn’t to say you shouldn’t properly plan and ensure the project is a worthwhile investment. When completing any significant renovation, it’s important to consider whether or not you’ll break even when selling the property. No one wants to dump a significant portion of their savings into a home renovation project only to have it hurt their sale or not pencil out financially in the long run. But the option for secondary housing is a very desirable feature of any home, and with the versatility of different ADUs, they are a viable option for those looking to get creative when upping their home’s value.

How much value does an ADU add?

Now that we’ve covered how ADUs can increase the value of your home, let’s talk about actual figures. How much value does an ADU add exactly? While this will vary widely based on the primary home’s location, type, and the amount of work needed to complete the ADU itself, it goes without saying that an ADU can increase the final asking price for sellers. Some of the value added, however is non-numerical (i.e. adding value to your lives, to your financial stability, and ability to offer inter-generational housing).

But in terms of numbers, a study found that In the largest cities, a home with an ADU is priced 35% higher than a home without one. Some homeowners will add an ADU to rent out to interested renters, which can certainly drive personal revenue outside of a selling situation. Another study found that houses with ADUs improved their resale value by more than 50%, which is som**hing to consider for those that know they may want to sell down the line.

Types of ADUs

Now that we’ve covered what an ADU is, and how an ADU can add value to your home, let’s explore some of the different types of ADUs. Remember, not all ADUs are created equal, and will always vary based on the property’s location and type. While some homeowners may get creative with their ADUs, they will typically fall into one of three categories: attached, detached, and interior. Let’s look into each ADU type in more detail.

Detached ADU: A detached ADU is one of the most high-valued ADU types for the obvious reason that it provides accommodations that are separate from the primary living space. Another reason is that a detached ADU can increase the amount of square footage on your property, which is an important factor an appraisal will assess when calculating a fair selling price. This increased square footage will directly increase the home’s value, making a detached ADU a viable m**hod for securing considering ROI.

Attached ADU: An attached ADU closely follows a detached ADU in terms of adding value to your home. There is inherently less privacy with an attached ADU, but it’s always possible that an appraiser could apply the square footage of the space to the asking price of the home. But keep in mind: the ADU ordinance has a limit on the square footage allotment for attached ADUs. Generally, a connected ADU can only extend the size of the property by 50%, which can provide some limitations.
Interior Conversion: An interior conversion, like a garage conversion, is the final ADU type and is generally the one that will add the least amount of value to your home. But that isn’t to say they shouldn’t be considered. Interior conversions are some of the most affordable m**hods for adding an ADU to a property, but make sure that losing out on the space during construction will not create any headaches. The most common reason property owners will complete an interior conversion is to rent out the area as a rental property, which can dramatically increase revenue.

Costs of ADUs

One of the main factors to consider when planning an ADU is the cost, which impacts your bottom line and the selling price. Because ADUs will always vary based on the home type, the cost will also vary, so make sure to coordinate with a qualified contractor to plan out the design and potential turnaround. Additionally, the designing and permitting process could increase the soft costs of an ADU, so make sure to request updated information surrounding zoning regulations and permitting for your local area. Some contractors will offer all-inclusive pricing, which can help homeowners prevent any surprise costs down the line.

So is an ADU a good investment?

Short answer: Yes!

An ADU is a great investment for homeowners willing to put in the time, money, and research to plan the right ADU for their home needs. Whether you’re looking to create the perfect space for rental accommodations or simply want to increase the resale value of your home, an ADU is a clever and creative way to do so.

05/19/2021

What to Look Out for when Working with Cash Buyers.

Reviewing cash buyer contract with magnifying glass
At face value, working with cash buyers should be easy and simple. Cash, As-Is, no appraisals….easy peasy! Unfortunately this is not always the case and working with cash buyers can be difficult. The good news is, knowing what to look out for when working with cash buyers BEFORE opening escrow can prepare you to save you time, frustration, and hair-pulling! Over the years, we’ve seen competing cash buyers include certain terms in their offers that should be seen as red flags and/or warning signs. Whether you’re thinking of selling your own property to a cash buyer or you’re listing a property for a client that is attracting cash buyers, keeping a keen eye out for the Red Flags below could help avoid choosing the wrong buyer!

Knowing why investors include these terms in their offers and how to counter them will put you in a much stronger position in the transaction and simplify the process of selling your home for cash.

1. The “Non-Contingent” Offer
What exactly is a non-contingent offer? When a buyer submits a “Non-Contingent” offer, they are essentially forfeiting any and all of their privileges to perform due diligence on a property they’re interested in. I.e. they’re giving up the right to….

perform further inspections
review seller’s disclosures
confirm clean ownership with a title report
complete a final walkthrough….
….in addition to plenty of other protections that are standard in a purchase contract.

We see it in competing offers all the time. Companies that buy houses for cash say they’re non-contingent and that they “don’t need an inspection period”. Often times their goal here is to make their offer appear as strong as possible and get their offer accepted. Unless you’ve seen the tactic before and know how to prevent it, buyers may take advantage of their Earnest Money period to complete their due diligence. They know that once their offer is accepted, they likely have the industry standard 72 hours to submit their Earnest Money Deposit and can use this 72 hours to do their initial walkthrough of the property, perform inspections, etc. If they find som**hing they don’t like or realize the numbers don’t make sense after physically walking through the property they can cancel their offer or try and re-negotiate by asking for a price reduction. All this happens before any of their money has been submitted to escrow!

Pro tip: Write up a Seller counter! Shorten the earnest money period to 24 hours or sooner and make it clear that no further inspections will be allowed until escrow receives buyer’s nonrefundable Earnest Money!

2. Long (Unnecessary) Inspection Periods
While a typical financed buyer typically gets about 17 days to perform their due diligence on a property, cash buyers should be writing in a much shorter time period into their contracts. How much time does a cash buyer need to perform inspections? It’s a loaded question, and depends on a couple things….

the complexity of the renovation
necessity of additional inspections (I.e. Foundation, soils report, zoning/planning research, etc.)
The more complex a project, the more time a buyer may need to perform due diligence. With that said, a cash buyer SHOULD be able to complete their inspections on an average house of average size (up to 2,500 square feet) in 3-4 days. Some investors may be able to work faster while others may rightly need more time to perform additional due diligence. BUT – digging deeper into the buyer’s plans is HIGHLY encouraged if they’re asking for 8+ days to perform due diligence for a basic home. They may be trying to give themselves as much time as possible to farm out to other buyers!

PRO TIP: Write up a Seller counter! You can always counter inspection days to whatever timeline you feel fair!

3. Low Earnest Money Deposit
Any savvy seller should want their buyer to have “Skin in the game” i.e. som**hing to lose if the buyer does not perform to the contract. This typically comes in Earnest Money Deposit which is usually expected to be submitted to Escrow within 72 hours of offer acceptance. Should the buyer cancel their offer or not perform per the contract after removing their contingencies, escrow may be obligated to disburse those funds to the seller. The LOWER the earnest money amount, the LESS SKIN a buyer has in the game, and the LESS incentive a buyer has to perform to the contract! It’s important that the amount of the earnest money is significant enough to motivate the buyer to perform.

Things to Keep in Mind

1% of the purchase price is industry standard. (Earnest money on a $600,000 purchase contract should be at least $6,000)
Anything below that, consider countering it up!!
Remember: If a buyer can’t submit a reasonable amount of money to escrow, how are they going to bring all the funds to close!?

4. Unusually High Offers
If you’re selling a fixer property for cash in San Diego, it’s likely that it will get a lot of attention from local investors if exposed to the local market. If the property you’re selling has multiple offers on the table, be wary of investors that are significantly higher than the average offer price of others you have in hand. Some investors knowingly come in higher than what they can actually pay for the property to tie the property up and use the contingency period to negotiate the price back down to a number they can buy it. Keep in mind that most fix and flip investors have similar way and m**hod for running numbers and determining their offer price. If one fix and flip buyer is significantly higher than the others, som**hing may be amiss! Dig deeper!

Pro tip: Use logic, ask questions, and see HOW an investor plans on using the property once completed. If a buyer is doing so to renovate and re-sell themselves for a profit, how do they plan on making money by paying significantly more than other competitors?

5. Out of Area buyer
If you catch wind that a certain buyer submitting on your listing/property is from out of your area, proceed with caution! While by no means are all out of area investors “bad” it’s likely a safe bet that these buyers don’t know the local neighborhoods of San Diego (or your area) as well as a local buyer would. Investor-buyers that are not from San Diego likely aren’t as familiar with the market as a local buyer who has an established track record of flipping homes in the area. These types of buyers usually need to do MORE market due diligence during their contingency period to confirm their numbers and that they’re comfortable with the purchase. More due diligence means more uncertainty for you, and puts the transaction at a higher risk of changing their numbers mid-escrow and asking potentially leading to a price re-negotiation.

We hope that by knowing these tips in what to look out for when working with cash buyers, you’ll be better equipped and more prepared to facilitate an EASY escrow for top dollar!

05/12/2021

Do Renters Need A Home Inspection Too?

Should you get a rental property inspection before signing a lease?

A home inspection is the norm when you buy property, but they’re virtually unheard of for renters. Is that a big mistake? If you ask for a rental property inspection before signing a lease, are you just being a pain, or are you making a smart decision?

Why You Want A Home Inspection As A Renter
Most renters never think of it, but there are many reasons to get an inspection. Generally, buyers require one because they know they’ll be the ones paying for any major repairs after they close the deal. This is seldom true for renters, but that doesn’t mean there won’t be the rare landlord who tries to blame a malfunction or damage on an innocent tenant.

Renters should also consider an inspection because they often fork over big deposits and legally obligate themselves for the term of the lease. This can be risky, even after moving out, if maintenance issues persist. Few have the cash to be paying rent for two places if they are only using one, and few landlords will be forgiving enough to let you out of the lease and not pursue you for the balance in court.

Equally important are the potential health issues involved if you decide against an inspection. You don’t want your family living in a toxic home or apartment. Unfortunately, there has been some chaos in the real estate market over the last decade where many landlords are not aware of a property’s existing problems. As the prospective tenant, it is on you to do your homework.

When You Should Get One
There are four instances when you should get a rental property inspection. You can do these home inspections with your landlord, or you can enlist a rental property inspector to do so on your behalf.

Before You Inquire: Don’t waste your time on a property that clearly has deficiencies. Before you inquire about renting, visit the property and conduct a “drive-by inspection.” All you’re doing is looking at the outside of a property and looking for serious red flags: a crumbling roof, broken windows, broken door locks, etc. These properties usually aren’t worth your time, or they may warrant a serious rental property inspection.
When You Move In: When you move into the property, you’ll conduct a property inspection with the landlord. Some landlords use a move-in checklist and document issues with the property. Do your inspection very thoroughly so you can locate all problems: if you miss som**hing, like a dented wall, the landlord may think you caused it and will take money from your security deposit when you move out. You and the landlord will sign and date the move-in checklist. Always ask for a copy of the checklist for your records.
When You Move Out: After you’ve moved all your belongings out of the rental property, you and your landlord will conduct another inspection to look for damage that you might have caused. Be sure to review the form carefully before you sign. If you caused any damage, the landlord can take money from your security deposit to make repairs. Always ask for a copy of the checklist.
Every Three to Six Months: Conduct a “routine inspection” of the rental property every three to six months, depending on the length of your lease. A routine inspection is a good way to ensure you’re keeping the rental property in top condition, and it will also make you aware of maintenance issues. You want to fix maintenance issues as soon as possible before they get worse. Remember, your landlord is responsible for having maintenance problems fixed, so there won’t be any financial obligation on your part.
Rental Property Inspection FAQs
Can I Get A Home Inspection As A Renter?
It may not be common, but there is no reason a prospective renter cannot order a home inspection for themselves. You will need your landlord’s permission and access to the property, but accessing this should not be a problem. Home inspections generally cost a couple hundred dollars or less and are well worth the investment. An alternative option may be to request a copy of a recent inspection from the landlord. Your landlord should have one if they just purchased the property.

What Do Home Inspectors Look At?
Home inspectors are extremely thorough. They will examine everything from the exterior, to pest control and the foundations. They will make sure the roof, wiring, and plumbing are all in working order. Don’t panic if they are overly detailed, It’s their job. You just need to worry about the items that might affect you while you are living there. Make sure to document the final status of the property as well, in case of a dispute later on.

Some important items that don’t typically appear on an inspection include mold, m**h labs, and Chinese drywall. These are extremely poisonous and potentially fatal, yet there may be no visible clues at all.

What if My Landlord Won’t Allow A Property Inspection?
Because this is a somewhat infrequent request, your landlord could be wary. Reassure them why you are doing it. If they still refuse, you should seriously question going through with the rental process.

rental property inspection

What Else Should Savvy Renters Check?
It can be a minefield in the renters’ world today, which is why smart renters need to complete as much of their due diligence as possible. This includes checking into the solvency of the owner and manager. Are they paying the mortgage, taxes, and maintenance, or are they at risk of falling into foreclosure? What about any associations involved? Is the condo or homeowners association solvent? Do they have enough operating capital and reserves to keep up the services and maintenance you expect? Much of this information can be found in public records if they won’t provide it to you directly.

Also, ask about the owner or property management company’s reputation. Are they tough, fair, good, crazy? Why did the last occupants vacate? This gives you a chance to meet some of your prospective neighbors and feel them out.

Summary
Rental home inspections are clearly important, even for renters. Even if you plan on renting a place that’s newly built, you should never rely on looks alone. If the seller won’t allow your rental home inspection, don’t be afraid to insist on one. Confirm your right to purchase as-is with the right to inspect, or know when the risk is too high and walk away.

05/05/2021

Cash Buyers vs. Traditional Listing: Pros and Cons

You can take two main routes when selling a home: listing the property or searching for cash buyers. In today’s fast-moving real estate market, sellers will likely have no trouble with either option. However, there are a few factors to consider before deciding which path to follow.

Cash buyers have become increasingly common in the last few years as more and more people have begun real estate investing. Working with a cash buyer can be tricky for sellers, as they may be unfamiliar with how the home selling process works. Many sellers fear that cash offers are too good to be true, but this is simply not the case. There are several situations where a cash buyer might make the most sense when selling your home. Keep reading to learn what you should consider before listing your home:

Selling Direct To A Cash Buyer
Cash buyers are exactly what they sound like: buyers ready to purchase your home without a mortgage or long-term financing m**hod. They typically buy properties to renovate or rent and are willing to move quickly to land deals. If you are curious about selling your home to a cash buyer, there are a few things you should consider first:

Pros:
The most significant benefit of a cash offer is the potential for an overall easier transaction. Cash buyers are usually ready to place an offer on the home and close in a very short amount of time. They do not need to wait for a bank’s approval to sign the papers and finalize the purchase of the property. This can save sellers the stress of financing challenges that could delay the sale of the home. For these reasons, cash offers typically result in faster closing timelines. For example, here at CT Homes, we average a ten-day closing period as opposed to the traditional 30-day closing.

Buyers paying cash will also typically forego a traditional home inspection or appraisal to make their offers more favorable. They are in the business of upgrading, renovating and doing work to add value to the properties they purchase. Many of them anticipate purchasing your home “AS-IS” in its present condition, meaning you’re expected to do absolutely no work to the home before closing.

An additional benefit: Cash buyers will often offer to pay for the Seller’s Closing costs and typically do NOT expect to be paid a commission as a result of the sale. These two benefits in combination can save sellers between five and eight percent of their net profits on average during the transaction. 5-8% is a chunk of change! Not only will selling your house to a cash buyer help save on closing costs and commissions, it will also help maintain your privacy and well-being during the sale. Many cash buyers will not request multiple viewings or extra photos of the property. You will not have to have a horde of people through your home (a recent property we listed on the market received 50+ showings in one weekend)! This privacy can be especially important as many individuals continue to minimize close contact with strangers as a result of COVID-19.

Cons:
The number one tradeoff for a fast closing and simple transaction is the prices. Sellers will likely find that cash buyers tend to offer lower amounts than a traditional home-buyer would be able to. Many cash buyers are going to rehab or rent the property, and to make that profitable need to minimize their upfront costs. Unfortunately for sellers, this can result in an underwhelming offer. Sellers should also be prepared to handle any negotiations attached to the sale. Investors will typically gather information about the property and even request to speak with you one on one during the process. In a traditional real estate transaction, negotiations are handled by real estate agents. Try not to let this intimidate you! As long as you do the right research and background check the cash buyers you’re considering (google reviews are a great start!) you should not be concerned about the negotiations!

Click here to get a RELIABLE cash offer!

Listing A House For Sale
The most common way to sell a home is to work with a real estate agent and list the property for sale. By selecting the more familiar option, sellers can leave the heavy lifting up to a professional. That being said, there are still some factors to consider before listing a house for sale:

Pros:
Exposure is one of the most important reasons sellers choose to list their homes with an agent’s help. A real estate agent will list your property and walk you through the marketing steps necessary to bring in offers. These include taking photos of the home, hosting open houses, and listing the property online. These tactics could open the door to multiple interested buyers and increasingly high offers. There is no guarantee that a bidding war will happen, but listing the property with the help of a qualified agent can boost your chances of selling the property for the price you want.

Listing a house for sale can also help you avoid some of the more challenging aspects of a typical transaction. You will not be responsible for reviewing contracts, negotiating offers, or even coordinating viewings of the home. An agent’s expertise can guide you through the home selling process, thus taking away some of the more stressful components associated with selling a home.

Cons:
Listing a house does have its drawbacks, namely added costs in the form of agent commissions. Sellers are typically responsible for some, if not all, of the fees that help pay both the buyer and seller agents. These costs can range anywhere from five to seven percent of the closing price. Let’s say a property sells for $685,000 — the commission will be between $34,250 and $47,950. Sellers may also be responsible for additional closing costs that could further reduce the takeaway money from the sale.

Another thing to consider when listing a property is the potential for additional contingencies to be added to the sale that aren’t relevant when selling to a cash buyer.. Depending on the property appraisal and inspection, sellers could be responsible for making repairs before they move out of the house. Unfortunately, home inspections often reveal problems about a property that sellers may not even know about. This can invite buyers to request repairs or even de-rail the transaction before the buyers officially close on the property. Together, these factors could undermine the profits from the sale of the house.

Click here to get a FREE market analysis for your property!

Summary
Deciding to sell your home is a big decision to make, both emotionally and financially. Prepare yourself for the process by learning more about traditional listings vs. cash buyers. You may find that listing your home relieves some of the stress during this time; however, you may need the speed that only a cash buyer can provide. Each situation is going to be different, but take time to consider how either of the above routes could allow you to maximize your profits when selling your home.

If you’re unsure which option is for you, we can help! Gain confidence and a clear direction – contact us today for a quick consultation!

04/26/2021

https://www.newlothomes.com/blog/situations-we-can-help-home-sellers-with/

Homeowners find themselves in the position of having to sell their home fast for any number of reasons. For example, there are times when family obligations require you to move out of state with little warning. Maybe a job relocation takes you to a new area. Or a personal situation has arisen, putti...

04/21/2021

https://www.newlothomes.com/blog/how-pre-qualification-can-help-you-get-your-dream-home/

Buying a home is an important – and exciting – decision. After all, having a place to call your own, to raise your family in, to do as you wish with no landlord to answer to are all motivating factors in starting the process. But, in addition to these emotional reasons, buying a home can […]