Welcome to RVA, Real Estate, and Hez

What are we talking about here??

400 years of history; a booming food and brew capital; simply a great place to live!

— WHY RVA

In this blog, we are going to explore how live in RVA, how to eat and drink in RVA, and the best ways to ensure you are living your best life in the best home you can.

I hope that as you read this blog you will be able to see why living in the Richmond-Metro area is so amazing. I also want you to leave here with valuable content about how to care for your home and manage your real estate. We will cover an array of topics, but they are come back to one universal theme. Living your best life, in the region.

If you are able to walkaway with one tidbit, one new place to eat, one new place to drink, one new experience to try explore, then I feel that I have helped you.

Cheers.

You Can Invest in Real Estate Too!

We all think of ways to retire sooner, or ensure our children have college paid for, or have a lifestyle where we enjoy more luxury.  But what do we need to do this? We need to find ways to earn more money. Where does that money come from? One way is investing and there are several, realistic investment vehicles that could be used to generate greater wealth.  Now, there are pros and cons to any investment strategy. Stocks, bonds, mutual funds, or real estate are all avenues you could explore. This blog is going to, obviously, focus on real estate investing. Beginning with this article, there will be a weekly post covering some topics associated with real estate investing.  Let us start with the basics. 

Real estate investing can come in a variety of packages and strategies, some more passive than others.  You obviously could make it your full-time career, and just as the HGTV celebs have, money can be made via that route.  Yet, there are many paths you can take where real estate investing generates returns while you maintain your full-time job.  For many, this path may be safer as you have a stable income, not requiring you to be dependent on your real estate returns as your sole source of income.  Additionally, you could take all of your returns and recycle them into new investments, possibly exponentially increasing your gains. 

Two preconceived notions often stop people from ever exploring investing. 

First, ignorance.  Many people believe they do not or are unable to acquire the knowledge to become a real estate investor.  This is easily resolved. Between the resources online and at your local library, there is enough information to get you started no matter what your depth of knowledge maybe at this moment.  Head over to www.biggerpockets.com or pick up a copy of Rich Dad, Poor Dad as a start.  

The second preconceived notion that stops many would-be investors is the belief they have to be rich.  All-cash sales could make your purchasing process easier and faster, but it by no means is required. Smaller amounts of disposable income will allow you to become an investor.  There are numerous financing options that are very creative and stray from your conventional loan option. Hard money, HELOCs, FHA, USDA and VA loan products all are options. And there are more out there too.

One note to keep in mind as we begin this journey.  It is rare you will see mega gains on your investments instantaneously.  Is it possible that you are making lots of cash after a short time investing, sure it is.  But just as with any other investment path, patience is key. You are building long term wealth, and the most successful course of action is one that is nurtured over time.    

This brief introduction into real estate investing is simply a way to get you thinking about this path.  Growing wealth for now and the future presents all sorts of options for you and your family. And it is a realistic activity you can participate in.  Developing a knowledge base, a network, and team will allow you to enter a world you may have never known was possible for you.  

RVA, Restaurants, and Real Estate: Episode 2-Fatty Smokes

In episode 2 of RVA, Restaurants, and Real Estate we head to Fatty Smokes and have lunch with Chris Staples, the EatRP Director of Marketing and Hospitality. Fatty Smokes is an amazing BBQ spot in Downtown Richmond featuring house slow cooked pork, chicken, and brisket. The certified pitmaster, Chef Mike Lindsey leads the way in putting dishes out that are elevated but have comfort in every bite.

Chris and I chat about where EatRP is going and why RVA is an amazing town to live and play in. The El Jefe sandwich was over the top, the Fried Green Tomatoes always have a special place in my heart and stomach. And maybe the best kept secret were Big Mike’ Egg Rolls.

Chris Staples and me at Fatty Smokes. Look at those egg rolls!

Capital Gains Tax

Investing in real estate presents numerous opportunities to grow wealth.  Investing is not just purchasing properties to hold and rent or rehab and flip, your primary residence should also be considered an investment.  it is also your primary residence. Owning real estate presents value besides having a roof over your head. The tax implications are one area where you realize value from ownership.

Anytime you sell an asset, the federal government is going to collect there portion.  Stocks are a common example of this, where the IRS will tax you on the difference between what you paid and what you made on the sale.  This tax is known as capital gains tax, and it applies to real estate sales as well. With housing, there is a relief clause that exists removing some tax burden.  If you area an unmarried home seller you would pay no capital gains tax on the first $250,000 made via a home sale, a married couple receives up to $500,000.

There are some rules, obviously, to this exemption.

  1. The property has to have been your primary residence for two of the last five years.

  2. You can only benefit from this exemption every two years.

The value in this capital gains tax exemption is that you can take the return you have seen from the home sale and use it as you see fit.

One other beneficial tax break is the ability to subtract your full cost basis in the property from the sales price.  What is the cost basis? The cost basis is the original purchase price, plus all the closing costs, selling costs, and improvements you made.  The greater this number the closer you may be to fully realizing the capital gains tax benefit, therefore putting more cash in your pocket. Use the spreadsheet below to see where you might stand.  A quick caveat with all this. To have a full and true understanding of any tax implication you should consult with a tax professional.

Your home’s original sales price when you bought it (not what you brought to closing).

Additional costs you paid toward the original purchase (include transfer fees, attorney fees, and inspections but not points you paid on your mortgage).

+

Cost of improvements you’ve made (include room additions, deck, etc. Improvements do not include repairing or replacing existing items).

+

Current selling costs (include inspections, attorney fees, real estate commission, and money you spent to fix up your home to prepare it for sale).

+

Add the above items to get your adjusted cost basis:

=

The final sale amount for your home.

The adjusted cost basis figure from above.

Your capital gain:

=

As you start to plug in numbers and consider how you can leverage this rule, keep in my mind the two caveats that exist.  This is not an advantage for someone who has several rental properties. But for those living in the residence of two of the last five years, you certainly can gain a tax advantage as an home owner.

RVA, Restaurants, and Real Estate: Episode 1 – Hot Chick

Episode 1 has dropped of RVA, Restaurants, and Real Estate. This is an awesome new project where I explore the dining scene this amazing town that has become nationally recognized for what it is serving up.

Today we are at Hot Chick, an elevated fried chicken spot inspired by Nashville Hot styles tucked into the Historic Shockoe Slip on the 17th Street Farmer’s market corner. Hot Chick is one of many members of the EatRP group.

Chicken Sandwich
Hot Chick Sandwich

My guest today is Keith Harvey. A long time friend and fraternity brother from RMC who an excellent real estate attorney. Keith and I talk about his practice Harvey and Associates and what makes RVA such a great town to live.

Thanks to Chris Staples for hooking us with the opportunity to film and eat some great food. Their Hot Chick sandwich and the Chez Love’s Special of mac and cheese with fried chicken tenders on top were so good!

Keith Harvey and Me at Hot Chick.

Keller's Myth-Understandings

In my ongoing efforts to share with you the value real estate investing, I want to introduce you to an excellent book and ideology.  My license is associated with Keller-Williams, Richmond West. Keller-Williams was founded by Gary Keller who has built an incredible corporation that has shifted from a real estate business to a technology business.  What I have found during my with KW, is that it is also a business that has found create success because of systems, models, and mindset. The foundation of the tremendous success is the ability of Gary Keller to communicate the appropriate mindset, specifically real estate and technology.  One of the vehicles he has used to do this with is in the authoring of several books. For this article, we are focusing on the Millionaire Real Estate Investor.  

In MREI, Keller walks the reader through the possibilities, leverage, and the systems you can install to become a successful real estate investor.  We are going to briefly look at what Keller calls MythUnderstandings. He identifies eight of these that stand between you and your financial wealth.  

Three Personal Myths

  1. MYTH:  I do not need to be an investor, my job will take care of my financial wealth.
    TRUTH:  You do need to be an investor, because Social Security and 401Ks will never cover it all.  Your job is not your financial wealth. 

  2. MYTH:  I do not need or want to be financially wealthy, I am happy with what I have.
    TRUTH:  You do want to be financially wealthy, but how are funding your lifestyle?  Your children’s lifestyle? Going on vacation? Supporting your parents?  

  3. MYTH:  It does not matter if I want it, I cannot do it.
    TRUTH:  You do not know what you can do until you try.  There are endless sources of education available in print and digitally, as well as proven models that once understood will allow action to be taken. 

Five Investing Myths

  1. MYTH:  Investing is complicated.
    TRUTH: Only if you make it.  It is not easy, but it is not rocket science.  Using systems, models, and a team supports the process. 

  2. MYTH:  The best investments require knowledge most people don’t have.
    TRUTH:  Your most success will be in areas you know the most about.  You do not need to know everything. Create a niche. 

  3. MYTH:  Investing is risky, I’ll lose my money.
    TRUTH:  Investing is not risky.  Real estate investing has lower risks and higher returns than stocks.  Real estate will always be worth something.  

  4. MYTH:  Successful investors are able to time the market.
    TRUTH:  In successful investing, the timing finds you.  Using a model, assures that there is no time like the present. 

  5. MYTH:  All the good investments are taken.
    TRUTH:  There is always an opportunity to invest.  Every market has its share of good investments.  

Real estate investing has been a wealth growing practice forever.  Andrew Carnegie said “90% of all millionaires became so through owning real estate.”  Does this mean you will become a millionaire or guarantee that there is zero risk?  I cannot promise anything. Plenty of people lose money in real estate investing, but plenty of people make lots of money in real estate investing.  What I can tell you is that it is not has big and scary as it may seem. There are tremendous opportunities waiting for those that are willing to learn and work with trusted partners.     

Basic Math for Real Estate Investing

Investing in real estate is a means to grow your wealth.  To achieve success with this, some basic math concepts are really important in your decision making.  Many people buy property, and do not stop to consider the basic formulas that are related to the property’s ability to be valuable. It looks like a great deal, and they jump in without taking a moment to stop and crunch a few numbers.  So let’s talk about a few of these numbers.  

Income

If you have a rental property, this income is what you earn from your tenants.  Take everything you receive in rent and fees, add it up and you have your income.  

Rent

$900

Fees

+100

Income

$1,000

Expenses

This is the money going out from your rental.  Expenses often include the mortgage payment, utilities, and maintenance.  Some expenses may not be included in your monthly bookkeeping, such as taxes and insurance.  

Mortgage

$400

Trash

+30

Maintenance

+100

Expenses

$530

Cash Flow

This is where the next level of complex arithmetic enters.  Cash flow is the amount of money remaining after expenses are subtracted from income.  

Income

$1,000

Expenses

-530

Cash Flow

$470

Return on Investment

If you hear ROI thrown around, this is the acronym for return on investment.  ROI is the interest rate on the money you made for your investment each year. The formula is below:

ROI = (ending balance – starting balance) / starting balance

Using numbers, let us say you start the year with an investment of $2,000.  At the end of the year, you have made $1,000, giving you a total of $3,000 if you were to sell you investment.

ROI = ($3,000-2,000) / $2,000 = $1,000/2,000 = .5 or 50%.  

The return on investment with this scenario is 50%.  

All of this math is the basis of any investing.  It is not the only math you should be taking into consideration though.  There are some more complex formulas and figures that you should be assessing, as well as adding certain categories into you expenses and income.  Nonetheless, this gives you a jumping off point as we continue to explore the world of real estate investment.    

Investing Classes and Strategies

 

When discussing real estate investment, you need to recognize immediately, how broad the topic is.  Yes, there are some overlying elements and features that are applicable to all niches within real estate investing, but each class comes with its own uniqueness.  

The following is a list of some of the various classes one could invest in: 

Raw land1. Raw Land: Can you get simpler than this?  Probably not! Raw land is the dirt you stand on at a property. Raw land can have construction occur on it or could be leased for agricultural or mineral means. Buying larger parcels could allow an investor to subdivide the land for future development.  

House2. Residential single family homes:  When most people think about real estate investment, this is the first place their mind travels to.  It is exactly what it sounds like, a home that is designed to house a single family. This can be an 800 square foot, 2 bedroom property or a 5 bedroom, 3,000 square foot home.  

3. Duplexes, Triplexes, and Quads:  These small multifamily properties are the next step up from single family homes.  These properties, ranging from two to four units, can be purchased and managed very similarly to single family homes.  There is tremendous flexibility here with lending, managing, and investing. 

4. Small apartments:  Buildings with 5 to 50 units are considered small apartments.  Small apartments enter into the commercial world of real estate and financing, but on the lower end.  A key characteristic is recognizing how value is determined, which is done through income generation as opposed to the comparative property approach. 

Apartment5. Large apartments:  50-plus units are considered large apartments.  Large apartments bring investor into a new echelon of real estate as their size and value often lead one to be involved with many people and the sheer value is significantly higher than the aforementioned classes.  

6. Real Estate Investment Trusts:  REITs are real estate mutual funds.  A big group of investors pool their cash into one pot and purchase large holdings of property.  This may include strip malls or mega-apartment complexes. REITs, like mutual funds, are very passive for the investor.  

Commercial7. Commercial:  Non-residential properties is an easy way to identify commercial investment.  The leased property’s purpose is to house a business. The range is wide when examining commercial properties.  You will find small local businesses to large supermarkets or industrial parks. A unique element of commercial investment is the lending facet is a little more stringent and expedient than a conventional residential loan.  

8. Notes:  When using a loan to purchase a property, the terms are prepared with a note.  There is a niche where these paper mortgages or notes, can be purchased and sold just like any other product.  

The complexity, at least in options, increases as you decide about how you plan to generate cash-flow from your property class.  There are three primary strategies to consider:

  1. Buy and Hold:  This strategy is the simple buy a property and rent it out.  The renter uses the cash-flow generated as passive income and a means to pay down the loan used to purchase the property.  When choosing to go down this path, it is very important to analyze the entire deal ensuring that all expenses on the front-end as well as on-going are considered ensuring positive cash-flow.  Additionally, systems need to be in place regarding the management of the property; will it be done by the owner or a paid property manager? Buying and holding a property also offers variety in the length of ownership.  You can own the property through the life of the loan or sell it when the property achieve an optimal level of value. 

  2. RenovateBuy and Flip:  If you have tuned into HGTV, you likely have watched a flipping-themed program.  An investor purchases a property on the cheap, and then renovates it creating instant equity.  Just as with the buy and hold strategy, flipping requires analysis to ensure value exists in the deal.  You have to assess how much you plan to spend on renovations and what the after repair value will be. Speed is also a critical factor.  The faster you can flip the property, the sooner you receive income and reduce your carrying costs.  

  3. Wholesaling: This lesser known strategy operates with the notes of real estate.  Here the investor finds a property, writes a contract, and then sells the contract to another buyer.  The income comes from the fee charged for selling the good deal to another investor who may not want to do the legwork that a wholesaler is willing to do.  Wholesaling can be very simple and require little overhead to begin your investing path.  

While investing in real estate goes well beyond these 800 words, these points provide an initial introduction.  There are options for many, and many can do it with limited cash flow. To begin you simply need to educate yourself, align with a team who can help in the areas you are deficient in, and find a great deal in the niche that most interests you.  

Shipup with shiplap

Shiplap.  Do you know what it is?  You probably do and just do not realize it.  Shiplap is a style of wooden wall siding characterized by horizontally mounted long planks with a slight gap between each one creating the appearance of what is known as shiplap.  The boards are usually 1 x 6 inches, pre-sanded. Exterior shiplap is a functional design element usually found in climates that are cold and aggressive. What we are talking about are what Chip and Joanna have made famous.  

The popularity of shiplap stems from the trendy coastal and farmhouse home design and how the flow of the planks guide your eyes around a room.  Your sight is carried around the space, making it look larger. Installation can be relatively simple, allowing most novice home renovators to be successful with it.  Traditionally, you will see it in a white tone, but natural wood tone is certainly not a bad look either.  

Shiplap installation is not the most challenging DIY, but it certainly requires more skill than just turning a screwdriver.  Installing shiplap can go one of two ways. You can purchase and install the prefabricated shiplap planks that have the rabbet joints cut into them or you can utilize other materials and manually create the nickel spacing identified with shiplap.  Rabbet joints are the recessed grooves cut into the planks that when stacked or installed next to another plank create the space desired.

 

If you are feeling handier, you could also use reclaimed wood or simply rip sheets of pine. If this is your approach, then you will have to use spacers as you install each plank to maintain the desired look.  This is where the nickels come in, so you may be heading to the kids’ piggy bank.   

 

 

 

 

 

Admittedly, whenever a project like this shows up, I call the closest thing to my personal contractor and ask for his advice/services.  Good to have a best friend who can swing a hammer pretty well. It is also why I am not going to go much further into the installation process.  If you are interested in learning more about it, check out this “How-to”. Or give me a shout, because I do know a someone who you could hire.     

When considering shiplap, there are some thoughts you should keep in mind:

  1. The shiplap does not have to be installed across all four walls or even from floor to ceiling.  Shiplap accent walls look great in a larger room, and installing shiplap above a backsplash or halfway up a wall creates a really strong design elements.

     

     

  2. Shiplap does not have to be white all the time.  Painting or staining offers a really impressive look in a room.  

     

  3. One small downside with shiplap to be aware of are those small gaps between each plank that create the visual everyone loves, are also loved by particles of dust.  You will need to be diligent with your feather duster to ensure you maintain a dust free wall. 

Shiplap is certainly a unique way to add flair to you house and create awesome visuals that stray from the usual painted drywall or wallpaper.  It does require a little more work, and is a little more costly than a coat of paint. Yet, anytime you add elements like this to you home, you are adding potential value.

Dealing with Financing

As the events of the last few years in the real estate industry show, people forget about the tremendous financial responsibility of purchasing a home at their peril. Here are a few tips for dealing with the dollar signs so that you can take down that “for sale” sign on your new home.

Get pre-approved. Sub-primes may be history, but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. You can also put yourself in a better position to make a serious offer when you do find the right house. Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.

Choose your mortgage carefully. Used to be the emphasis when it came to mortgages was on paying them off as soon as possible. Today, the debt the average person will accumulate due to credit cards, student loans, etc. means it’s better to opt for the 30-year mortgage instead of the 15-year. This way, you have a lower monthly payment, with the option of paying an additional principal when money is good. Additionally, when picking a mortgage, you usually have the option of paying additional points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. If you plan to stay in the house for a long time—and given the current real estate market, you should—taking the points will save you money.

Do your homework before bidding. Before you make an offer on a home, have your Realtor complete a CMA to provide you with sales trends of similar homes in the neighborhood.  They should consider sales of similar homes in the last three months. For instance, if homes have recently sold for 5 percent less than the asking price, your opening bid should probably be about 8 to 10 percent lower than what the seller is asking.