Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide #-2 Slide 4-2 Choosing a Location What are the advantages of your market compared to others?  For investment  For retirement  For vacation

Slide 4-3 Selection Factors  Climate  Outdoor Activities  Cost of Living & Taxes  Housing Options  Entertainment  Shopping  Tourism  Safety & Security  Infrastructure and Services  Local Attitudes

Slide 4-4 Is Every 2 nd Home an Investment?  Most 2 nd homes purchased as a combination  1 in 4 plan to convert 2 nd home to primary home after retirement  Two reasons for investing  Income  value appreciation  Align investor expectations with market ?

Slide 4-5  Provide information to help buyers evaluate and compare investment options  Do not offer investment advice Help Investors Make Informed Decisions

Slide 4-6 Is It a Bull or a Bear Market? Bull  Rising stock prices pull money into the market  More cash available for investment as investors seek to diversify Bear  Money flows out of falling market  May flow into real estate for safety and value appreciation

Slide 4-7 APOD or CFA Annual Property Operating Data  A snapshot view  Estimate of income, expense, and net profit on an annual basis Cash Flow Analysis  A moving view  Estimate of income, expense, and net profit on an annual basis ?

Slide 4-8 Investment Value  Return On Investment (ROI)  Cap Rate = Net Income ÷ Price ?

Slide 4-9 NAR Code of Ethics “REALTORS ® shall not… provide specialized professional services concerning a type of property or service that is outside their field of competence” Investment Advice SEC Unlawful to offer compensated investment advice about securities unless qualified and registered as an investment adviser

Slide 4-10  Significant percentage of cash buyers, particularly high-end properties  Mortgage interest deductible on combined debt of $1 million on primary and one other home  Same LTV and DTI ratios as primary home mortgages  High down payment requirements Financing Facts

Slide 4-11 When the property is located in another area or state, it may be best to seek mortgage financing through local banks. Local loan officers will know the market. The buyer might look to a local branch of their home bank for financing. Use Local Lenders for Financing Page 72

Slide 4-12  Lenders use investment-property underwriting standards when rental income is needed to cover payments,  Higher interest rates and down payment compensate for risk of vacancies  If too many condo units in a development are rented, difficult to obtain financing  Help buyers align expectations with realities Rental Income

Slide 4-13  Rent second home for income  At retirement sell primary home, pay off and refurbish 2 nd home Or  Sell both properties and purchase a new home Rental Home to Retirement Residence

Slide 4-14 Not available for financing second homes or investment properties FHA & VA Financing ?

Slide 4-15 Contract Contingencies Financing Appraisal Inspections

Slide 4-16  90-day time limit on home acquisition debt  Seller financing  Second mortgage on primary home  Balloon, interest only  Home equity  Private mortgage Finance Strategies

Slide 4-17  Fee simple  Joint, severalty  Co-ownership  Corporation Ownership  Partnership  Trust  Privacy  protection of assets  estate planning  easily transferrable

Slide 4-18 Co-Ownership Usage Assignment: each co-owner has exclusive use of the property for a specific number of days Pay-to-Use: each co- owner pays a pre- agreed usage fee for each day or week of use ?

Slide 4-19  Less expensive than ownership  No responsibility of upkeep  No real estate taxes, utilities, or maintenance expenses  Flexibility through exchange programs Time Share Ownership Buyer receives the right of property use for a specific period of time but not an actual ownership interest  No value appreciation  Difficulty to sell or exchange low-end or off-season time shares  Management and upkeep dependent on the sponsor  Limits on schedule and duration of occupancy

Slide 4-20  Less expensive than outright or co-ownership  Extended usage periods  Better usage-to-cost ratio than a time share  Can guarantee prime time or high season occupancy  Onsite management Fractional Ownership Deeded interest and extended occupancy

Slide 4-21 Non Equity Model  Similar to time share  No value appreciation  Partial refund if member leaves  May be difficult to recover deposit if too many members want out Non Equity Model Affluent buyers, luxury properties High upfront deposit Equity Model  Ownership of a % of portfolio of properties  When member resigns, refundable fee adjusted in line with portfolio’s value Destination Club

Slide 4-22 Putting it All Together Help buyers:  Clarify objectives  Chose the right property  Navigate the process  Understand locality  Align seasonal versus year- round expectations  Fit with future lifestyle and income?

Slide How far? 2. How much? 3. Why? 4. Wants/needs? 5. How often? 5 Questions to Ask

Slide 4-24 Investment Buyers Help investors:  Clarify goals  Evaluate properties  Align expectations for income, ROI, appreciation, personal use  Understand locality  Understand insurance needs Photo courtesy of Ted Jones, Senior Vice President-Chief Economist, Stewart Title

Slide 4-25 Attracting Renters Help investors:  Tune in to what attracts renters  Make the property attractive  Understand maintenance, upkeep, refurbishment needs

Slide 4-26 If buying furnished, an estimate from a local furniture store helps indicate the portion of the purchase price for furnishings. Budgeting for Furnishings

Slide 4-27 Provide a Rental History  Helps the investor budget for income and expense  Anticipate expenses for unique needs  Provide a list of contacts for property repairs and maintenance

Slide 4-28 Investor’s Usage Policies  No smoking?  Pets?  Occupancy limits?  Co-owners’ requests for additional time?  Reserve personal time to maximize rentals

Slide 4-29 Ask Questions To Get the Right Answers! Case Study!