CEO/Co-founder LaVerne Cox and Managing Director/Co-founder R.J. Cox discuss solutions for homeowners for when they can’t sell their property. You’ll uncover the problems for sellers in the current market and what’s causing properties not to sell as quickly as in previous months. You’ll learn the traditional paths that home sellers often take when they can’t sell, but you’ll also discover alternative solutions based on investment principles to help make money through your property when you can’t sell. LaVerne and R.J. also reveal how Evergreen Investments supports homeowners through Market Data with real-world examples.
Krista Westfall (00:00):
Hello, everyone to our returners, It’s wonderful to see you back! To all of our newcomers, welcome to the evergreen investments webinar! Thank you all for joining us today. My name is Krista Westfall and I am the Marketing Director here at Evergreen Investments. We are so excited to continue this webinar journey today, where we are helping homeowners and investors uncover ways to make money, to save money and to invest money in residential real estate. Homeownership is the number one way to grow wealth in America. And our goal with these regular webinars is to educate, to inform and to guide you towards wealth generation strategies that are unique to homeowners in a quick 30 minute workshop format, our topic today, investment strategies for when you can’t sell your home today, you’ll be hearing from evergreen investments leadership. We have Laverne Cox, CEO and co-founder and RJ Cox managing director, and co-founder. RJ and Laverne are experts on this topic and they have a lot of good info for you today. RJ has 25 years experience in real estate, property management, brokerage, and asset management. RJ weathered the 2008 foreclosure crisis. So you can be certain that he understands the time-tested practices to grow wealth and changing economic cycles. Laverne has been an entrepreneur from childhood. You heard me right, I said, childhood from the family business to starting her own enterprises, all the way to consulting with others on how to grow their businesses. Laverne is a season expert on guiding new owners to success and finance business formation and strategic operational management for service-based businesses.
With that, we have an exciting agenda for these next 30 minutes. We’ll start off with covering the current problems for sellers in this market, and what’s making it more difficult to sell today than in previous months. We’ll do a quick overview of the traditional solutions for sellers. Then we’ll provide some alternative solutions, investment type strategies to make the most of your home ownership. When you can’t sell from there, we’re going to talk a bit about everything investments and how we assist homeowners and ensuring that they achieve their home ownership goals. So now I’m gonna turn it over to RJ. He’s going to begin discussing the problems for sellers in the current market that we’re seeing.
R.J. Cox (02:26):
All right. Thank you, Krista. Yeah, I’ll start off by saying there are a handful of challenges for sellers in this current market. That’s making it a little more difficult to sell than in the previous months. This year, first off, we’ve got more inventory that’s heading to the market than in previous months. The active listing count noted from realtor.com shows a three and a half percent year over year increase. But even with that said active listings nationwide, still trail behind the pre pandemic and even early pandemic levels. People are trying not to miss that on the highest pricing they’ve seen in recent years, but they’re also feeling constrained because on the other side of that transaction the buyer dealing with low inventory and higher interest rates. Second, you’ve got that fact that getting the desired cash offer is just not as easy as it was before buyers are still out there.
They’re just not paying as much as they did before. And when you think about it, it kind of makes sense. Low interest rates gave buyers with mortgages or money to work with, and it also caused cash buyers to bid more aggressively to win those deals. Not in things that start to cool off on the mortgage front. The bidding wars are not as prevalent nationwide. You still have some hot pockets where you’ve got bidding wars and a lot of demand, but overall you are starting to see some of slow down. Some of it is seasonal. Everybody’s back to school. The summer hot season is done as far as days of daylight and availability to go see houses morning, noon, and night. Some of it is financial. You’ve got a little bit of labor market constraints in certain areas, but definitely far from that end, the water third, the timing is often mismatched for the desired goal.
If you are trying to still catch yesterday’s market conditions today, you’re a little off on the alignment. If you’re looking for properties to go under contract in three or four days above asking price, and you expecting 2030 offer right now, you’re not seeing as much. So for others adjusting to the season, timing will be the key to winning. And lastly, even though it was mentioned before, it does be repeating again, in this case, the cost of capital mortgages have risen. While home prices are beginning to fall. Buyers with mortgages have less house they can buy since their current payment budget gives them less dollars to borrow or less home falling pricing. A result of that change in affordability, along with seeds analogy, not a weekly environment in a general sense, at least not yet.
Krista W. (05:34):
Awesome. So is thumb that up. The problems we’re seeing from sellers are more inventory heading to market. Getting your desired cash offer is not as easy or just a bit slower than before. Timing can be mismatched to achieve your goals. And also the cost of capital has risen while home prices are dropping. So for those issues, there are different solutions that you can take that are the traditional and the more non-traditional the unique ones. We’re going to start off talking about the traditional solutions for when you can’t sell Laverne. Why don’t you talk about some of those solutions?
LaVerne Cox (06:09):
Thank you, Krista. Some of the traditional solutions on the market are really related to the been tested. Obviously for many homeowners, they may have already attempted to sell, utilizing MLS listing. What we’ve realized is most buyers send come to the market and suggest if you can’t get your ideal amount that you’re seeking, or the timing is completely off. What most agents will tell you is we need a reads the price. So readjusting the price is an option. And then there also are other options in the market, which are aligned to selling for less, which are I buyers in our current market or in internet buyers. Um, these buyers are quick cash buyers that will evaluate your property. Oftentimes very far from your home. They will use benchmarks within the industry to determine the price, and then they will optimize the, the, the asset that you’ve invested in for years, and then choose to either resell it on the open market or turn that asset into a investment under a rental own or a rental strategy.
The uncertainty, the market tends to be the reason that many people seek selling for less, because it’s a quick offer from an investor or a buyer and being pressured to possibly take, an offer at least in, in light of potential, either deed or lie of foreclosure or missing out an opportunity tends to lead many people to seek this option. Traditionally, the second option is waiting, many people tend to wait for their desired price. So we’ve seen this during the 2008 crisis where some homes were actually on the market over a year., and that really was due to the fact that, you know, they had the, an adamant owner that was fixed on making sure that they can opt optimally exit their asset ownership at a set number regardless of market conditions. And oftentimes those tended to sit, as I mentioned, and as a result, it oftentimes gave an image or perceived value that was diminishing every single month that that asset sat on the multiple listing service.
Another option is taking out a loan. And so with many sellers, when they can’t sell, they need to have some liquidity. They will opt for a home equity loan or some other form of extracting equity from their home through a loan. And so this particular solution oftentimes allows for, or even a reverse mortgage. This solution allows for that liquidity, but at the basis of possibly resetting some of the, the opportunity of wealth that you’ve already obtained through your years of ownership and possibly bringing you closer, or actually further away from your ultimate goal, which is having a free and clear asset. And finally, some people fall into this category. And unfortunately I hope no one here on this call does and it’s to do nothing. They fail to speak out options and advisors. And as a result, the research and the too many options on the market leads to them overthinking.
And that comes with a negative connotation, which is oftentimes fair of missing out, or just fair completely that shuts them down and can negatively affect their both cognitive ability, their willpower and the creativity. When you fail to plan goes the outage you plan to fail. And unfortunately, so too, does the do nothing strategy when you do nothing, your options are being removed from you and ultimately whatever you worst feared oftentimes is the outcome that is, oftentimes the exit strategy for you. However, if you take the initiative and learned a lot obtained, a great advisor to partner with you, you can gain at least the primary one to three steps necessary to actively pursue an exit option that is most ideal for the situation that you are currently experiencing.
Krista W. (10:51):
Awesome. So great. Those are some of your traditional solutions, something that you may have heard before, but now we’re gonna flip it on its side and we’re gonna give you some alternative solutions, some unique, solutions to when you cannot sell your home. So Laverne, why don’t you start this section off?
LaVerne C. (11:11):
Okay. I would love to all right. Number one, an alternative solution under just a finance strategy is oftentimes linked to a reverse exchange, a reverse exchange is basically a 1031 exchange in reverse. And so what that means is that a 1031 exchange allows someone to, relinquish their property for a desired, replacement property of like kind and be able to offset some tax, capital gains, etc. During that transfer between these two assets with a reverse exchange, you can’t actually buy your replacement property first and then have up to 180 days to have that relinquished property sold. What the benefit is that you now know what the deal or the outcome of your transfer from one asset to another is going to be, secondly, you can shop around for the best deal. And then third, you can ultimately know in advance what your target market and margins are.
Some things to consider when doing this strategy is, number one, the property has to be of like kind, a light kind exchange. Sometimes it does involve cash. However, with a reverse, exchange, you do not want to take any cash during the exchange process until the entire transaction, both the relinquish and the replacement property are, closed off taking that cash can actually remove that capital gains, exclusion that you’re trying to, or the tax benefits you’re trying to benefit from. Another thing that you need to take note of is that the entire exchange must be completed as a message before within 180 days. And third, the, the entire process of using this exchange has to use a third party inter media to hold the title on the replacement property for, until your relinquish property is closed within the 180 day timeframe. A second option, an alternative is the transfer of ownership or usage purposes.
So what oftentimes happens for many people is that they are trying to sell or transfer ownership and it’s for the benefit of a family member or the long term goal that they were seeking to keep their home as a nest egg for. And so transferring ownership or the usage process, for example, converting your primary residents to a business or converting it to an investment property can increase your cash flow. Number one, reduce the expenses for operating the home as an asset. And number three, help you to recapture some deductions that may be, you have not considered in your prior ownership experience as the primary owner occupant, during your transfer or the change of usage, you can improve operations, you can reduce the taxable operating benefits, and you can actually prepare the home over a one to two year period for the ultimate resale at a tax advantage or a tax strategy that will net you a higher amount.
Had you sold today, the final option is an installment sale and an installment sale is oftentimes an option for people that want to exit the, ownership strategy or the ownership, experience, but don’t wanna necessarily spend a lot in taxes. And so these are the key benefits of an installment sale. You can make it as flexible as you desire. You can make it as fast or as slow as you need. It will lower your tax bracket because you’re distributing the overall sale over a period of time. It is a safe investment and it’s that secondary, benefit to this investment style or this solution is that you also will net interest income from the interest being derived from those installment payments. So not only are you getting the desired price for your home, you’re also obtaining interest income on top of that as well. And so it’s an easy way to make sure that you get your top dollar at the top rate in the timeframe that is necessary to reduce your taxes. So those are some really great and often times useful financial solutions to utilize.
Krista W. (15:50):
Awesome. RJ, why don’t you continue and talk to us a little bit about capital infusion and or extraction.
R.J. C (15:59):
Absolutely. So to put it into another perspective, capital infusion is another way to say you’re putting more money into the property. So for example, you can renovate it, looking to get a better rate of return as a rental for a more renovated, updated product. Or if you were to look to refinance in this current market, putting some additional capital in to get a lower or loan to value percentage that can get you to refinance at a better rate, could be a great way to leverage an asset that you may not want to sell right now. Alternatively, you could extract capital, take money out from the asset in various ways. We mentioned refinancing, but there’s a cash out refiance option., another way is to think about, additional ways to use the proceeds, to multiply the return on investment. Otherwise then you’ve got this capital that is burning a hole in your pocket because you’re paying on that additional note each and every month.
A third alternative solution when you can sell is to create cash from operations, free cash flow from a business that’s occupying that space can be reinvested in a property. It doesn’t have to be anything tremendous to start. A lot of people can start a business in their unfinished basement or in their backyard. You can start to sell or do something on the side and use that additional income to lower your operating cost of the house that you’re living in. Now, lastly, you could use some of the tried and true strategies. You could rent your property out as a long term rental and become a landlord. Another spin on that is renting a single room in your house. You’ve got a lot of platforms that make such a viable opportunity possible, and you’ve always had visitors that are looking for temporary housing across the us for an exchange student housing travel,, nurse housing right now is a big, business travel housing is always a possibility as well.
You can rent out spaces in your house for storage or for parking. And another way to create cash from operations is to become a short term rental host. Once again, there’s many platforms out there that will help you take advantage of that. So if you just wanted a guest for a couple of days or a week, you can do it instead of having to rent it out everyday of the month or make it a vacation type rental. There’s a lot of opportunity to create additional cash flow for your home. And, but at final investment strategy for when you just can’t sell and then hand it over to Laverne, because this is a favorite of her work.
LaVerne C. (18:51):
OK. So yes, course appreciation is a favorite of mine, but just one thing that RJ mentioned there about extraction and infusion, you know, that there are opportunities already on the market where an investor will assist you on owning a portion of your home to extract some of the equity that you have. So you can have shared equity with an investors, so there’s opportunities outside of just debt. And so just wanted to bring that to your attention, forced appreciation. So under forced appreciation, what we’re specifically doing is we are looking at our asset and we’re comparing it to the market. And the reason I love it is because I do believe in maintaining it and building stronger communities and homes that are well built, time tested and are strong and maintain the character. And the nature of the community ultimately builds not only perceived value, but actually actual value in the home.
And so there’s some basic ways to improve the actual, amenities in the home from the actual value systems that, investor and a consumer or owner occupants specifically homeowner is looking for. And so we do this by personal improving, or updating the property to a point where the appraiser has to evaluate it differently than maybe other similar nearby properties. And so the factors that would lead to these other properties, getting that higher appraisal and is specific renovation plans that meet or exceed the specs, of what is common in the area, or is meeting a new demand in the market. This strategy can, and does work, especially areas that haven’t begun to return the pricing corner just as yet, basically it is forced appreciation through operations. You’re literally owning this asset. It makes sense that you understand what the market is demanding and create a product that fits ways to increase that property value is through upgrades on the interior or exterior systems.
Adding beds are about as additional units, improving curb appeal. And here’s a, a special tip that I’m going to share with you. Landscaping improvements, literally, unlike other related expenses are not be captured. What I recapture taxes is that when you are ready to resell this home and you have gotten it a praise for a higher value, all the depreciation that you have, taken over the years gets added back to the overall, tax value for the home, landscaping as well as unfixed, moveable assets in your home do not. And so something as simple as, improving the parking outside, lighting utility connections on the exterior of the home, your paving services, those can be, depreciated for up to 15 years. if you are holding 10, if you’re holding for a shorter period of time, those can be these depreciated and, a shortened span up to five years for other things, similar to improving cabinetry or repainting surfaces, anything that is temporarily improving the exterior benefit and the overall appeal of that asset ultimately adds to the value and then ultimately ends up adding to the overall increase, appreciation that you can net from your home.
Krista, I think this is about a good time to talk about how Evergreen Investments supports, the consumer or the average owner and investor in the market. Do you mind if I, continue with the market data,
LaVerne C. (22:48):
Okay. All right. So I mentioned already that there is market data that can support you understanding exactly what home in your area is settling for and, or the is being demanded. So namely, if you ever thought about data and you thought about it from the standpoint of many of people like that is overwhelming, it’s a lot of numbers and I don’t necessarily know where to begin or end with it. Well, let me just share with you the primary three that you should think about so that you can be better informed as a homeowner or an investor. Number one is your demographics. It’s understanding, how to calculate the true value of the home and what is causing it not to sell. What we’re doing in this slide is we are comparing in we at that in versus 2022 in 2017, this home’s market value was appraised for $325,000.
And when we compared that same asset with its rental rate, the rental rate, was $2,195, per month. What we realize is that for many homeowners, we tend to estimate the market value based on where the asset tends to trade. So the market value is oftentimes what you would see on the home listed for, for example. And we determine that it is the true market value because it is what people are willing to spend on the asset. Now, market value can sometimes be perceived value in that it’s based on often times for a owner occupant on monthly expenditures. How much can I afford? However, investment value is a little bit different. If you notice in our column, we have a desired return on the investment and we have 5%, eight and 12%. And we notice that that five, eight and 12% creates a different investment value outcome.
And so let me explain those two numbers to you. So if we are looking at this particular property as an investment on an annual basis, it’s going to net in 20 17, 20 6,340 $40. If my cost of capital, meaning the cost, it takes the, for me to borrow the money to purchase this asset is about one to 3%. Well, then I have to add some return on that investment to determine whether or not I am, you know, being profitable in this investment strategy. So oftentimes if someone is getting cheap capital, they could have purchased that same asset anywhere from 325,000 or more than the market value, as high as 526,800. However, if their cost of capital is more expensive, the investment value for that property begins to decline. And if you notice, if your perceived or entrance into the market, as an investor is entering around 7%, getting that net five on return and covering the, or netting a decent return rather is oftentimes going to cause you to have to purchase an asset of what is perceived in the market 5,000 at just two 19,500 RJ, would you like to add anything to this particular site?
Or would you like to share your perspective on the 2022 version?
R.J. C (26:29):
I think you did a great overview. I can talk on the 2022 version.
So now when you take a look at that same asset, five years later, you go, wow, the rent value increased from 2195 to 28 50. And look at how much more money you can make off of it. Now you’re looking at an annual gross income of over $34,000 a year. And now if you’re an investor and you’re looking to get a 5% return or an 8% return, or a 12% return, the investment value is still relatively high, but it compared to the market value, you can see that only the investor that’s in interested in a 5% return on investment can afford to pay the market value for it. And investor that’s looking for a higher rate of return. Their investment value is gonna come in below market value. So what we were seeing in the early part of this year, and last year, we had a lot of buyers, whether owner occupants or investors that came in, like mentioned with relatively cheap capital mortgage rates into twos and threes, they were raising money and getting relatively low, interest rates on that capital.
So they were able to bid higher because they could get a lower rated return and still have something that they can work with as an investment or a purchase to live in. But now that mortgage rates are starting to go up higher and investors that are raising capital or taking out loans are borrowing at higher rates. Also being able to make the numbers work at that market value doesn’t pencil out. And so you’re seeing offers coming in lower, or you’re seeing buyers just opting out of starting the conversation and saying, wow, it looks like we’re so far apart on the pricing, we just won’t say anything at all. And see what happens if the price starts to come closer, the investment value versus the market value.
LaVerne C. (28:42):
And this is also true RJ in other ways as well. So this number first way with market data, you can get investment versus market valuation so that you understand how the asset is being perceived. Another means is to determine the likely buyer or your, of the replacement property and your location. And we use this by, understanding the demographics of the asset and the area that the asset is in. And so specifically what you may find is that you may find psychographic information about, okay, what types of professionals are in this area? What is the common wealth index, the diversity index, specifically the median household income, as well as the annual growth rate for the area. Because those things determine the types of buyers and their behavioral patterns and why this particular asset would be attracted to them. So once we have that information in hand, another piece of data that is helpful is market intelligence that helps you to understand, whether someone can afford to live in this particular, asset.
So discovering how you can afford or your, your living cost or your replacement property, or the one that you are, you are leaving helps to discover or determine what is a suitable replacement property for the type of lifestyle that you wish to maintain. And so what we do is we TA we borrow some information that we obtain from our actual property. So in this particular example of our five bedroom, three back home in, in Georgia, we took that information and we looked at the psychographic information and we found that the psychographics stated that there was a specific type of consumer that lived here and it’s often times called a savvy suburbanite. And what we did is we looked at where did our end buyer want to move to? And so he had three or two metropolitan areas rather, and one was Dallas and the other was Birmingham, Alabama.
And when we compared Birmingham, Alabama to, Dallas, Texas, and we looked at the psychographics of the lifestyle that he was living in Georgia, we found that Birmingham, Alabama actually suited the lifestyle match that he was looking for. So we removed one entire choice using that market data by just locating what type of lifestyle the owner currently is living in and wants to maintain. And then the second step in this entire process is then taking the demographics of what the current property is or the desired property to be relinquished. And we matched it by zip code to possible properties within the Birmingham, Alabama area. I know this is not the common way of doing this, but this is the best way, because not only are you going to find a mix of not only homes that match your lifestyle, but also the people and the amenities that you’ve grown accustomed to. And so oftentimes if you ever wondered why your local, retailers oftentimes follow you wherever you go, it’s because they are following the demographic and the psychographic information of the people that live there, you too can be empowered to make that same type of choice, utilizing the market data and market intelligence that we provide as your missing middle advisor.
Krista W (32:11):
And that was awesome. I saw every time I listen to you guys, I learned so much more than I knew before. And I hope everyone who joined us today has learned quite a bit to Laverne, was talking about market data and what we do to support your home, the homeowner. So make sure you all check your emails tomorrow for a special intro offer to our new market report subscription service. We are about to launch it. So we are giving our attendees a chance to get in on the ground floor to get very, very special pricing. So make sure to keep an eye out for that in the next day. And that’s all we have for you today, as always thank you for joining us. We’ll be back here in about four weeks, make sure to check those email inboxes for invites. You will get them as you were at this webinar, and we’re excited to keep giving you guys information to help you grow your wealth through residential real estate. Thank you all for joining us today.