Before shopping for a new home, your real estate agent will ask you to talk to a lender FIRST and get pre-qualified or pre-approved (sometimes those terms are used interchangeably, but technically a pre-approval has actual verification of income with paystubs and tax returns instead of your lender just taking your word for it). However, you may not want to go through this process beforehand and even feel like your agent is being pushy. As someone who is both an agent and a homebuyer, I can tell you this isn’t the case.
- Unless you consistently pull and review your credit scores, you may not know how low or high they are or even if there are collections owed. It is not uncommon to have a surprised client after a discovery by a lender about past due payments or other negative items that will need to be cleaned up first before getting approved for a loan. Sometimes this is as simple as calling a creditor and paying something off, other times it may entail help from an outside source like a credit repair specialist. This process can take days to months to complete and the sooner you know what needs to be done, the sooner you can put a game plan in place.
- By talking to a lender first, you will have a much clearer understanding of what loan type and interest rate you qualify for. This is vitally important as just a quarter point difference can make or break your budget. Plus different loans have different attributes associated with them such as required down payments, mortgage insurance and closing cost differences. Having a better handle on what will be required with both cash to close and on a monthly basis will determine how much home you can actually afford which leads us to the next point.
- You may be looking at the wrong price range and this could work against you either way. Without talking to a lender who crunches all those important numbers for you, you may be looking at champagne homes on a beer budget. OR the opposite can occur and you could be trying your darndest to fall in love with a home in the $300K range but really you can go up to $325K which can make a difference in size, finishes and even neighborhoods.
- You MUST be ready to GO in this market. If you fall in love with a home and want to put an offer on it, you won’t even be considered a real buyer if you don’t have a pre-approval attached. Plus some sellers require a pre-approval even before allowing the home to be seen.
Until you have spoken with a lender, you may be wasting precious time, money on gas and perhaps most importantly, emotions, on the wrong homes. The more prepared you are as a buyer before turning on your computer to start an online search or getting in your car to drive to your first showing, the better off and ultimately happier you will be. For a list of our preferred lenders, visit our website at www.themeridianway.com and look under the vendor tab. Happy home buying!
By Holly A. Morris, Realtor
The Meridian Real Estate Group
Over the past year we have all been spending much more time outdoors. We’ve been entertaining, relaxing, spending time together with our families and when time allowed, eventually back with friends. We have also used the outdoors as a tranquil respite. During this time we have re-evaluated how we have utilized these spaces. Now that we are in the Porch Life Season, its time to think about how we can step up our porches and patios as an extension to our home.
What is the first step on layout when creating an inviting porch or outdoor living area?
First off, I always start with the surrounding. Look at your space and ask What’s the star view or draw outside? What should you be looking at when you are gathered and is there a focal point inside like a fireplace? The second question is, How will the space be used? Maybe it will be used for lounging or a combination including dining. You will get much more use out of your space once you figure those out. Then, consider the interior spaces that are close by such as a living room, keeping room or kitchen. I love to bring the inside aesthetic outside just as much as I like to bring the outside surrounding inside. It is all about creating harmony between the two.
What do you need to consider when it comes to upholstery ideas?
Because of rain, humidity, winds and other outside elements, the make-up and durability is even more important on your outside space than it is inside. When working on the construction, it is important to consider every detail, even what outdoor thread is being used. People tend to think, “ a covered area, it will be fine.” That really is not the case. Even on a covered porch, use outdoor fill and good construction for cushions to extend life and avoid interior mildew. As there are so many beautiful indoor/outdoor fabrics, you can get the same great, rich look outside as inside including things like velvets that are even bleachable.
What are some mistakes people tend to make with porches?
Hands down the biggest mistake I see is people using inside fabrics and pieces on a porch. Even lamps. Today there is a vast array of outdoor fabrics and lighting out in the market. I love outdoor rated lamps. You really want to spend a bit more for all things rated outdoor use, and you’ll only cry once!
What type of furniture do you recommend?
Use a mix of different furniture types on porches. The layering adds depth and is much more interesting. Try some great upholstery mingled with teak or powdered coated metal, depending on if a space is more traditional vs contemporary. And, just like inside, you’ve added interest by including something unexpected.
Do you have a good rule of thumb on how much seating to have?
Well you want to always have enough for the family. I’d then add on at least 2 spots from there.
How should you treat floors?
If I’m doing a covered porch, I would use a rug. Again, it is a great way to bring the feeling of the indoors outside. There are some fabulous indoor/outdoor rug solutions out there now that don’t have that plastic feel of the past.
What do you do about additional lighting – candles or lamps?
Oh lamps for sure. I would also consider a chandelier or lantern of some sort. Candles are fun to add a little lift to a table just like inside. It is important to have good lighting so your outdoor space is just as inviting in the darker and cooler hours than in daylight.
What do you suggest for privacy and sun protection?
For a porch, since we are in the South, definitely a screen to keep the bugs out. For outside, a great umbrella or sail shades.
What do you keep in mind on how to make it inviting for all ages?
Just as you would inside, make sure that the seating isn’t too low or too deep for people to get in and out of their seat. That can be awkward for young kids or more fragile adults. Also, make sure that your space is well lit. No one likes a dim porch when you’re reading a book or trying to enjoy each other’s company over games, meals, or chats.
What do you incorporate when you use your porch for entertaining? Unwinding?
I’m Italian, so I really like a place to put out delicious food or snacks. I love dining alfresco, so I prefer to include a dining table. However, if the space isn’t big enough, then a great coffee table can also work well to set out snacks or a light meal. As long as you have something to set dishes out on. Music on a porch adds to the atmosphere, so make sure to wire for speakers. Beyond that, I would say make sure that there is some place to be able to lounge. Adding pull away pillows for napping is another sure way to invite unwinding.
Is it okay to decorate using indoor items for outdoor use?
No, I wouldn’t. I don’t typically do that as they will not last in the South. There are so many good outdoor items that can be found, that I tend to lean in that direction. The one exception would be an item that is typical to inside, but ok outside such as the teak root coffee table that I used in a recent project.
How do you feel about ceiling fans?
Yes! They are a must for bugs and heat in the South. It’s when I am working in more temperate areas like California, where it wouldn’t be as necessary.
What are some sophisticated touches so it seems more of an additional room to the house?
Rugs, great fabrics like outdoor velvets, lamps, lanterns and décor accents. Your end goal is to make your outdoor space feel like a true extension of the indoors.
Tish Mills Kirk of Tish Mills Interiors, a preferred vendor of The Meridian Real Estate Group, is an award-winning interior designer who has been working with clients in their homes for more than two decades. She believes that it is essential to put together a cohesive plan for your home renovation before you get started that can be carried out by the team of experts you assemble. www.harmoniousliving.net
Tenant representation is often overlooked by small business owners when looking to lease a commercial space for their business. Most commercial landlords will be represented by a leasing agent that will gladly show you the space, confirm your financial qualifications, and provide you with lease terms. However, these agents are strictly working for the best interests of the property owner and not the small business owner leasing the space. Many small business owners will move forward without representation, but this can be a costly mistake that puts at jeopardy the long term success of the business.
An agent representing the landlord has one sole responsibility and that is to lease the space for the highest price to the most qualified tenant. When they show a space to a small business owner they are focused on highlighting the good aspects of the property and minimizing the negative. They may be able to show you more than one space but they are limited to only the spaces they are listing for the property owner. This agent will be very courteous and they will seem helpful, but they are not necessarily giving you the whole truth.
This is where tenant representation comes in. A commercial real estate agent focused solely on the needs of the tenant can be a valuable asset to any small business owner. For one, an agent representing you as the small business owner will be able to show you all of the options on the market and not try to sell you on one property above all others. Leasing commercial space is a vitally important decision to the long-term success of your business and seeing all of your options and being able to weigh them against each other is a huge benefit to making the best decision.
A tenant rep has only one person’s interest in mind and that is yours. They will perform a needs analysis to make sure you are seeing every property that may work. Once you have determined a preferred location, they use their market knowledge and experience to negotiate aggressively for the terms that work best for your business. A good tenant rep can save you thousands over the term of the lease by ensuring that you are paying a fair market value in rent.
As a small business owner if you are working only with the landlord’s representation you are putting yourself in a weaker negotiating position. A tenant rep can be your best ally and the best part is that working with a tenant rep is typically free for the small business owner. The landlord pays commission to their agent. If you have no representation the landlord’s agent is just keeping all of the commission, if you do have representation the leasing agent simply shares their commission with the tenant rep. It costs you nothing.
With all of the benefits that tenant representation has to offer and the fact that the tenant rarely comes out of pocket for this service, it should be an easy choice for small business owners looking to lease commercial space. Having tenant representation just makes good business sense.
We Can Help
Whether you’re looking to lease, buy, or sell commercial property, now is still the time to do it in Atlanta. The Meridian Real Estate Group has been assisting commercial clients for well over a decade and would love the privilege of earning your business. Our goal is not just to help our clients with a transaction, but to support the building of financial legacies through real estate. Call us today at 678-631-1723 or visit us online at www.themeridianway.com. We look forward to serving you.
You never really know when the major systems and appliances in your home will break down or need to be repaired. Having these issues during the listing period can become a big headache for any seller who does not have home warranty coverage. It’s common knowledge that listings with home warranty coverage included typically sell faster and for a higher price, but there are other important reasons for both home sellers and agents to include home warranty coverage on all of their listings.
Protection During the Listing Period
Selling a home can be stressful enough as it is- the last thing a seller should have to worry about is searching for a reliable service technician at a moment’s notice when a major system or appliance unexpectedly breaks down– not to mention the associated costs that will come with it. With Choice Home Warranty Seller’s Coverage, the coverage is free during the listing period, where allowed by law*- meaning the only cost to sellers is the service call fee, if and when there is a claim. This can save you time, money, and frustration during the listing period.
Protection After Closing
In addition to financial protection during listing, seller’s coverage also protects sellers and agents from post-closing disputes. Seller’s coverage is 100% transferable to the home buyer at closing, which allows the new homeowner the same level of coverage on systems and appliances with no waiting period. If a covered system or appliance breaks down after closing, the buyer will be protected. This protects the buyer, but it also protects the seller and seller’s agent from liability.
With many buyers now skipping home inspections entirely, there is even more opportunity for an unexpected issue after closing. Having home warranty coverage in place through the listing period helps shield the seller and agent from possible disputes and lawsuits in these instances.
Seller’s Coverage with Choice Home Warranty is Simple
Finding a reliable contractor in the event of a breakdown can often be time-consuming and expensive. With Choice Home Warranty, sellers can feel confident that their finances and reputation are protected both during listing and after closing. Policy holders can place a claim 24/7, 365 days a year, through their account center or by calling 1-888-275-2980.
*Click Here to view complete limits of liability and any exclusions. CHW offers service contracts which are not warranties. See policy for specifics on response times. CHW reserves the right to offer cash back in lieu of repair or replacement in the amount of CHW’s actual cost (which at times may be less than retail) to repair or replace any covered system, component or appliance.
What Banks Look for When Reviewing a Loan Application Not all banks are created equal, but many of them focus on the same areas throughout the loan review process. Learn what documentation, projections and narratives you’ll need to prepare as well as tips to ensure you negotiate the best loan package available.
Whether you are applying to a bank for:
- A line of home equity credit
- A line of credit for business working capital
- A commercial short-term loan
- An equipment loan
- Real estate financing
- Some other type of commercial or consumer loan
Many of the same basic lending principles apply.
Five Keys of Loan Applications
The most fundamental characteristics most prospective lenders will concentrate on include:
- Credit history
- Cash flow history and projections for the business
- Collateral available to secure the loan
- Myriad pieces of loan documentation that includes business and personal financial statements, income tax returns, a business plan and that essentially sums up and provides evidence for the first four items listed
The first three of these criteria are largely objective data (although interpretation of the numbers can be subjective). The fourth item—your character—allows the lender to make a more subjective assessment of your business’s market appeal and the business savvy of you and any of your fellow operators. In assessing whether to finance a small business, lenders are often willing to consider individual factors that represent strengths or weaknesses for a loan.
Tools to Use
To give you an idea of what banks specifically focus on when reviewing a loan request, the Tools & Forms section contains a sample business loan application form that is typical of the kind of documentation you’ll need to complete as part of your loan application package.
We also include an internal bank loan review form used by one small community bank to make its own review of a small business loan.
Lenders will want to review both the credit history of your business (if the business is not a startup) and, because a personal guarantee is often required for a small business loan, your personal credit history. We recommend obtaining a credit report on yourself and your business before you apply for credit. If you discover any inaccuracies or problems, you can correct them before any damage to your loan application has occurred. If you can, find out which credit reporting company your prospective lender uses and request a report from that company.
Reviewing Your Commercial Credit History
Before you apply for commercial credit, you should review a credit report on your own business, if your business has been in existence for a while. You can obtain a free Business Information Report on your own business from Dun & Bradstreet.
If D&B does not yet have any information on you, they will allow you to voluntarily obtain a listing by providing them with some basic information about your business.
Most conventional lenders will expect a minimum of four or five trade experiences listed on a business report before they consider the business creditworthiness. If you have been operating your business without credit, or with personal assets, you should consider making some trade credit purchases in order to establish a credit history for your enterprise.
Reviewing Your Consumer Credit History
Consumer credit agencies are required to remove any information from the report that cannot be verified or has been shown to be inaccurate. However, before you submit a letter disputing any debt to the credit reporting company, it’s often a good idea to contact the relevant creditor directly. If an error was made, you can often clear up the dispute more quickly if you take the initiative.
If the dispute is not resolved and your credit report is not adjusted, you have the right to file a statement or explanation regarding the alleged debt with the credit report. If your credit report does have some tarnish on it, you might consider requesting that any creditors with whom you have had a good credit history, but who did not report the transactions, be added to the report. For a minimal fee, most credit bureaus will add additional creditor information.
The three major consumer credit reporting companies are TransUnion, Experian, and Equifax. Dun & Bradstreet is the largest business credit reporting agency.
Providing Collateral to Secure a Loan
When it comes to obtaining a secured loan, providing collateral is a must. To a bank, collateral is simply defined as property that secures a loan or other debt, so that the lender may be seize that property if the you fail to make proper payments on the loan.
Understanding Your Collateral Options
When lenders demand collateral for a secured loan, they are seeking to minimize the risks of extending credit. In order to ensure that the particular collateral provides appropriate security, the lender will want to match the type of collateral with the loan being made.
The useful life of the collateral will typically have to exceed, or at least meet, the term of the loan. Otherwise, the lender’s secured interest would be jeopardized. Consequently, short-term assets such as receivables and inventory will not be acceptable as security for a long-term loan, but they are appropriate for short-term financing such as a line of credit.
In addition, many lenders will require that their claim to the collateral be a first secured interest, meaning that no prior or superior liens exist, or may be subsequently created, against the collateral. By being a priority lien holder, the lender ensures its share of any foreclosure proceeds before any other claimant is entitled to any money.
Protecting Your Collateral
Properly recorded security interests in real estate or personal property are matters of public record. Because a creditor wants to have a priority claim against the collateral being offered to secure the loan, the creditor will search the public records to make sure that prior claims have not been filed against the collateral.
If the collateral is real estate, the search of public records is often done by a title insurance company. The company prepares a “title report” that reveals any pre-existing recorded secured interests or other title defects.
If the loan is secured by personal property, the creditor typically runs a “U.C.C. search” of the public records to reveal any pre-existing claims. The costs of a title search or a U.C.C. search is often passed on to the prospective borrower as part of the loan closing costs. In startup businesses, a commonly used source of collateral is the equity value in real estate. The borrower may simply take out a new, or second, mortgage on his or her residence. In some states, the lender can protect a security interest in real estate by retaining title to the property until the mortgage is fully paid.
Determining a Loan-to-Value Ration
To further limit their risks, lenders usually discount the value of the collateral so that they are not extending 100 percent of the collateral’s highest market value. This relationship between the amount of money the bank lends to the value of the collateral is called the loan-to-value ratio. The type of collateral used to secure the loan will affect the bank’s acceptable loan-to-value ratio. For example, unimproved real estate will yield a lower ratio than improved, occupied real estate. These ratios can vary between lenders and the ratio may also be influenced by lending criteria other than the value of the collateral. Your healthy cash flow may allow for more leeway in the loan-to-value ratio. A representative listing of loan-to-value ratios for different collateral at a small community bank is:
- Real estate: If the real estate is occupied, the lender might provide up to 75 percent of the appraised value. If the property is improved, but not occupied, such as a planned new residential subdivision with sewer and water but no homes yet, up to 50 percent. For vacant and unimproved property, 30 percent.
- Inventory: A lender may advance up to 60 percent to 80 percent of value for ready-to-go retail inventory. A manufacturer’s inventory, consisting of component parts and other unfinished materials, might be only 30 percent. The key factor is the merchantability of the inventory—how quickly and for how much money could the inventory be sold.
- Accounts receivable: You may get up to 75 percent on accounts that are less than 30 days old. Accounts receivable are typically “aged” by the borrower before a value is assigned to them. The older the account, the less value it holds. Some lenders don’t pay attention to the age of the accounts until they are outstanding for over 90 days, and then they may refuse to finance them. Other lenders apply a graduated scale to value the accounts so that, for instance, accounts that are from 31 to 60 days old may have a loan-to-value ratio of only 60 percent, and accounts from 61 to 90 days old are only 30 percent. Delinquencies in the accounts and the overall creditworthiness of the account debtors may also affect the loan-to-value ratio.
- Equipment: If the equipment is new, the bank might agree to lend 75 percent of the purchase price; if the equipment is used, then a lesser percentage of the appraised liquidation value might be advanced. However, some lenders apply a reverse approach to discounting of equipment. They assume that new equipment is significantly devalued as soon as it goes out the seller’s door (e.g., a new car is worth much less after it’s driven off the lot). If the collateral’s value is significantly depreciated, loaning 75 percent of the purchase price may be an overvaluation of the equipment. Instead, these lenders would use a higher percentage loan-to-value ratio for used goods because a recent appraisal value would give a relatively accurate assessment of the current market value of that property. For example, if a three-year-old vehicle is appraised at $15,000, that’s probably very close to its immediate liquidation value.
- Securities: Marketable stocks and bonds can be used as collateral to obtain up to 75 percent of their market value. Note that the loan proceeds cannot be used to purchase additional stock.
Establishing Your Cash Flow from Operating Your Business
The cash flow from your business’s operations—the cycle of cash flow, from the purchase of inventory through the collection of accounts receivable—is the most important factor for obtaining short-term debt financing.
Understanding Your Cash Flow Cycle
A lender’s primary concern is whether your daily operations will generate enough cash to repay the loan. Cash flow shows how your major cash expenditures relate to your major cash sources. This information may give a lender insight into your business’s market demand, management competence, business cycles, and any significant changes in the business over time.
Tools to Use
Included among the Tools & Forms is a cash flow budget worksheet. The worksheet is an Excel template that can be used in Excel 4.0 or higher. Because it’s a template, you can use the worksheet over and over again and still retain an original copy of it. The worksheet is set up to be used for projecting your cash flow for six months. We’ve formatted the worksheet and put in most of the cash inflow and outflow categories for you. All you have to do is put in your numbers and print it. While a variety of factors may affect cash flow and a particular lender’s evaluation of your business’s cash flow numbers, a small community bank might consider an acceptable working cash flow ratio—the amount of available cash at any one time in relationship to debt payments—to be at least 1.15:1. As most lenders are aware, cash flow also presents the most troubling problem for small businesses, and they will typically require both historic and projected cash flow statements. In preparing cash flow projections for newer businesses, you may want to refer to any one of several sources that publish sales/expense ratios for specific industries. The ratios will help you compute realistic sales revenues and the proportion of expenses typically necessary, in that industry, to generate the projected sales revenue.
A business’s cash flow will usually include not only the money that goes in and out of the business from its operations (sales less expenses), but also any cash flow from investments or financial activities (e.g., payments and receipts of interest and dividends, long-term contracts, insurance, sales or purchase of machinery and other capital changes, leases, etc.) However, the most important component to a lender is simply whether the business’s ongoing sales and collections represent a sufficient and regular source of cash for repayment on a loan. Because of the attention that cash flow receives, you may want to consider our suggestions for improving your positive cash flow.
Improving Your Cash Flow
If you’re trying to improve your odds of getting a business loan, we suggest you review the following practices of your business:
- Pay off, or delay paying, debt. If possible, pay off existing debt or refinance the debt for a longer maturity with lower payments. For other debts, try to renegotiate payment lengths. Believe it or not, some creditors may allow some delinquencies as long as some money is coming in. In some situations, you may simply have to prioritize those creditors who must be paid because they are providing necessities—such as utilities, certain suppliers, payroll, etc.—and try to delay payments to creditors who are less likely to halt your business—like secondary suppliers.
- Collect receivables. Try to quickly collect overdue accounts. Revenues are lost when a firm’s collection policies are not aggressive. The longer your customers’ balance remains unpaid, the less likely it is that you will receive full payment.
- Reduce credit allowances and accelerate cash receipts. If you can tighten credit terms without losing good customers, you can increase available cash on hand and reduce the bad debt expense. You can also encourage cash sales through discounting and pricing policies. In addition, try to reduce the float time on customer payment checks. You can do this by undertaking prompt processing of checks as you receive them, using a bank lockbox arrangement in which you pay a fee for the bank to collect and process all incoming payments, and by shopping for a bank that quickly processes negotiable instruments.
- Increase revenues. While this suggestion is an obvious goal of every business, a poor cash flow may indicate that you need to seriously reconsider what steps you can take to increase sales revenues by either raising sales volume and/or altering prices. In reviewing ways to increase cash flow through increased sales, guard against allowing too many credit purchases. Extending credit will increase your accounts receivable, not your cash.
- Reduce inventory. If you can reduce the amount of inventory you maintain, your cash outflow should decrease.
- Review tax strategies that may help cash flow with your accountant. For instance, a tax credit may be available for job opportunities you create for certain disadvantaged employees, “qualified research” (research and development) costs or the expenses of property renovation or rehabilitation of certain qualified buildings. In addition, accelerated depreciation on certain equipment and tangible property may be available to increase your short-term tax deductions.
Assessing Your Character as a Potential Business Borrower
The weight given to a lender’s assessment of a borrower’s character can vary tremendously between lending institutions and between individual lending officers. Many small businesses have found more success “selling” their reputation and good character to smaller community banks who may be more directly affected by the economic health of the surrounding community.
To ensure you’re selling yourself well to your lender, we’ve compiled the most important steps to follow.
Improving Your Character in Front of Lenders
As a general rule, the following traits are considered the most important when a bank considers your character:
- Successful prior business experience
- An existing or past relationship with the lender (e.g., prior credit or depositor relationship)
- Referrals by respected community members References from professionals (accountants, lawyers, business advisers) who have reviewed your proposals
- Community involvement
- Evidence of your care and effort in the business planning process
Many banks consider the amount of investment the owners themselves are committing to the business as evidence of a borrower’s “character.” On top of that, many commercial lenders want the owner to finance between 25 percent to 50 percent of the projected cost of a startup business or new project. If your investment is considered insignificant, a lender may consider it a lack of both owner confidence and dedication to the business.
One banker noted to us that he often relies upon reaching a personal “comfort level” with a borrower before making a loan. This comfort level is based upon the degree of trust or confidence that the banker has in the accuracy of the information and documentation being presented to him. He observed that in their zeal to “sell” him on the profitability of their business, small business borrowers sometimes talk him out of this comfort level by disclosing that their tax returns underreport income and overstate expenses. Such disclosures cast doubt upon the credibility of the loan applicant, and impair any sort of trust or confidence between the banker and the prospective borrower.
Preparing Bank Loan Documentation
The process of applying for a loan involves the collection and submission of a large amount of documentation about your business and yourself. The documents required usually depends upon the purpose of the loan, and whether your business is a startup or an already-existing company.
Documentation for Startups
- A bank will typically request, at a minimum, the following documentation for a startup business:
- A personal financial statement and personal federal income tax returns from the last one to three years
- Projected startup cost estimates
- Projected balance sheets and income statements for at least two years
- Projected cash flow statement for at least the first 12 months
- Evidence of ownership interests in assets, such as leases and contracts, and collateral
- A business plan that includes a narrative explaining the specific use for the requested funds, how the money will assist the business and how the borrowed funds will be repaid (repayment sources and duration of repayment period), including identifying any assumptions used in developing your projected financial
- A personal resume, or at least a written explanation of your relevant past business experience
- Letters of reference recommending you as a reputable and reliable business person may also help your chances for a loan approval
Some lenders will also want you to submit a breakeven analysis in the form of a financial statement or a graph. A breakeven analysis shows the point at which the company’s expenses will match the sales or service volume. The breakeven point can be expressed in terms of dollars or units sold.
Tools to Use
The Tools & Forms section contains a sample personal financial statement that is typical of the kind of documentation you’ll need to complete as part of your loan application package. We also provide Excel spreadsheet templates that allow you to create your own balance sheets, income statements and cash flow budgets. Because these files are in template form, you can customize them and use them over and over again.
Documentation for Existing Businesses
For an existing business, you can anticipate a request to produce: Income statements and business balance sheets for the past three years Projected balance sheets and income statements for two years Projected cash flow statements for at least the next 12 months Personal and business tax returns for the last three years A business plan, depending upon the credit history of your business and the purpose for the loan, may be unnecessary, and a brief narrative of your intentions may suffice Additional Documentation Requests to Expect Depending upon the specific type of loan you are seeking, you should also address certain issues germane to that loan type. For instance, if money is requested for working capital, your documentation should include: The amount that will be used for accounts payable, along with an accounts receivable aging report to disclose the current amounts overdue 30 to 60 days or older The amounts that will be used for inventory and any increase in the number of days that inventory on hand will be held The amount your cash balances will be increased A contingency amount that is equal to at least 10 percent but preferably 25 percent. If money is needed for machinery or equipment, include information that addresses: Whether the assets will be immediately available or if a delay is anticipated The price of the assets and how installation will be performed Whether installation will interfere with current production and the cost of any interruptions Documentation for an acquisition of land financing should include the real estate’s cost, location and size, intended use, and whether any of the land is for future expansion.
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The inventory shortage isn’t going to last forever. In the meantime, studying the economy, real estate market statistics and particularly the new home construction process will make you a fierce competitor in today’s market and the future.
We all know that there is a shortage of inventory. It has been a national topic of conversation, even for non-real-estate professionals, for quite some time. The question is: How long will it last, and is there anything we can do about it?
There are several interesting factors that have contributed to the recent surge in home prices, as well as the inventory shortage. Today, we’re going to focus on new construction and what that means for the overall real estate market.
As Ben Caballero wrote in his article for Inman:
“Beginning in 1959, the US Census Bureau started to record housing starts. During the 48 years between 1959 and 2006, builders completed 52,941,000 homes for an average of 1,102,938 homes per year.
“For the 14 years between 2007 to 2020, builders started 9,914,600 homes or 708,186 homes per year, which is 394,752 fewer starts per year than the historical average. This annual shortfall totals 5,526,525 homes during those years. In 2020, builders started 990,500 homes, still below the historical average of 1.1 million annual starts.”
Historically, annual home starts around 1.1 million per year was sufficient to meet supply and demand. If builders could build 1.5 million homes per year, the national home inventory would gain 400,000 starts per year to add to the current shortfall — which is about 5.5 million homes.
However, based on that math, it would take over 13 years to make up the shortfall! If builders could create 2 million homes annually, we could achieve a supply-demand balance in about six years.
Because of the shortage of new home construction starts, existing-home prices have gone up rapidly. Yes, in part due to supply and demand but also because there is no new product for the existing homes to be measured against.
For example, if you could buy new construction for $500,000, then chances are you are not going to buy a comparable existing home for the same price. Perhaps that property built in 2010 would sell for $475,000.
However, without new construction in that area, buyers may pay $500,000, $525,000 or more because there is simply no new construction “bar” to set home prices against. This is great news for sellers but not so great for buyers, particularly first-time homebuyers, who are getting priced out of the market.
We also know that lumber prices are still up by roughly 78 percent since the start of 2021, though they are beginning to fall somewhat. This is good news for homebuilders (and ultimately buyers) who have been feeling the effects of surging commodity prices for over a year now.
Of course, the record-high lumber prices over the past year certainly haven’t helped with the cost of new construction, which simply gets passed onto the buyer, once again potentially pricing new homebuyers out of the market.
As the owner of three real estate brokerages, a national real estate team, and a residential and commercial construction management and development firm, I’m seeing the real estate market from all angles right now.
Our existing-real estate sales are booming, as are our new construction reservation agreements. Despite this housing inventory shortage there was actually an increase in single-family home sales in 2020 — 5.6 million, up from 5.3 million in 2019.
Inventory is tight. Sales are up. New construction home starts need to increase. Buyers are missing out on deals. Sellers are cashing in on inflated equity in their homes. There is no doubt that real estate is a tough industry to be in right now. Which just means to me that opportunities abound!
Based on the data above, if you haven’t already, now is the time to start educating yourself on the new construction process and building a strong partnership with your local builders. They are likely going to be ramping up their new home starts over the next few years — the demand is there.
As a real estate professional, you want to be their go-to market and marketing expert. If you could hook up with a builder who had 20, 100 or 200 units to sell over the next few years, think about what that would do for your real estate business.
Not only could you potentially negotiate a deal with the builder on the listings, but you also have many more opportunities to bring buyer leads to the table, and of course, help those buyers sell as well. It’s a win-win-win.
The inventory shortage isn’t going to last forever. Like with any market, there are ebbs and flows. As new construction home starts continue to ramp up, existing-home prices will start to level out, and the supply and demand will find equilibrium again, though it might take several more years before we see that.
In the meantime, studying the economy, real estate market statistics and particularly the new home construction process will make you a fierce competitor in today’s market and the future.
What will one year cost you?
All things being equal, if you were to purchase a home where the loan amount was $350,000 at the current average interest rate of 3%, your base mortgage payment without taxes and insurance would be $1,476 a month.
Wait just one year and that same home loan amount with the estimated national average increase in home prices of 7% will cost you $374,500. Calculate that with what most experts are saying will be at least a .5% increase in interest rates over the next 9-12 months, and your base monthly mortgage principal and interest payment will jump to $1,682.
That’s a 14% increase. (1,682 – 1,476 = 206) (206 / 1,476 = .13956) (.13956 x 100 = 13.956) or 14% rounded up.
If a 14 % loss of buying power in one year doesn’t seem like a lot, consider this. How would you feel if your employer said to you that they were going to cut your pay by 14% this next year but was going to expect you to do the same amount of work? And then to add insult to injury, said that they were also considering decreasing your pay by that same 14% for the next several years in a row as well.
OK, so maybe you think, I’ll just wait it out.
Unfortunately, most experts believe there won’t be a slowdown of any significance in home prices going up for quite some time due to the basic laws of supply and demand. For example, according to recent Inman News articles, we have had a 400,000 new home start shortfall for the last 14 years based on national historical data kept by the US Census Bureau. This goes back as far as 1959, leaving us 5.5M houses short which basically means we have between a 6 and 13 year supply deficit. For more detailed information about this, see the Inman News article in our Newsletter titled “Knowing New Construction Gives You A Competitive Edge — Here’s Why”
So if you’ve been considering buying a home but have hesitated because you believe the prices will start to level out anytime soon, please understand that the statistics just don’t support that belief and actually suggest otherwise.
What to do?
We can help, and we would love the opportunity to earn your business. With interest rates still at historical lows and home prices expected to increase for years to come, now is the time to buy. Let us help you navigate this very competitive seller’s market, employ valuable tricks of the trade to make your offers the most competitive possible (even beating out cash), as well as guide you on locations, types, and ages of homes where you can get the best bang for your buck.
For a free buyer consultation contact us at [email protected] or you can reach one of our Team Members by calling 678.631.1723.
By Tony Morris, Realtor
The Meridian Real Estate Group
The median existing-home price for a single-family home in March jumped to a record high of $334,500, according to data from the National Association of REALTORS®. Meanwhile, the median sales price of a newly built home was $330,800, according to U.S. Census Bureau data.
New homes are traditionally more expensive than used homes. The scenario in which existing homes sell for more than a new home hasn’t occurred in more than 15 years, CNBC reports.
However, that doesn’t necessarily mean existing homes are more expensive, economists say.
“On a per-square-foot basis, within comparable markets, a new home is still priced higher than an existing home,” Robert Dietz, chief economist at the National Association of Home Builders, told CNBC.
Available housing in the existing-home sector lately may be skewing toward the higher price brackets. For example, the number of existing homes that sold in March priced between $100,000 and $250,000 fell by 10% compared with a year earlier. On the other hand, the number of homes priced between $750,000 and $1 million that sold increased by 82% compared with a year earlier, according to NAR data.
New-home construction is increasingly drawing more first-time home buyers, and some builders are starting to build slightly more entry-level homes to meet demand. First-time buyers were responsible for 43% of new-home sales in February, according to the National Association of Home Builders, higher than the 31% of existing-home sales first-time buyers purchased.
Regardless, the higher price tags for existing or new homes haven’t deterred home buyers.
“Consumers are facing much higher home prices, rising mortgage rates, and falling affordability; however, buyers are still actively in the market,” said Lawrence Yun, chief economist at the National Association of REALTORS®.
Commercial and Investment real estate transactions have been moving at a brisk pace and a considerable percentage of those sales have been structured as 1031 Exchanges, allowing sellers to defer taxes otherwise due in the year of sale. Often the taxes deferred are used to repurpose or improve the replacement properties. This helps to create jobs and stimulate the post pandemic economy.
Depending on your circumstances and goals, it may be a good time to re-assess, then reposition your portfolio utilizing a 1031 Tax Deferred Exchange. A 1031 Exchange permits an investor to defer the federal and state capital gains tax, gain due to depreciation, net investment tax and even some state-imposed non-resident withholding taxes. That can be upwards of 25-30% of your gain, equating to thousands of dollars instantly saved and used to reinvest in new investment property through the Tax Deferred Exchange.
We asked our own Patricia Flowers, an industry veteran with over 20 years of experience who consults with hundreds of taxpayers each year ranging from owners of vacation cottages to CFOs of Fortune 500 companies, to explain this year’s surge of interest in 1031 Exchanges. Here are her top 5 reasons to exchange:
There is a very good chance your property has appreciated in value, making it a great time to sell. A 1031 Exchange affords you the opportunity to preserve your equity, keep the proceeds you would have set aside to pay taxes and instead deploy the funds to the purchase of new real estate with greater potential. Keep your equity working for you.
Your apartment building, shopping center, commercial, industrial building, investment condo, single family rental or other investment property may not be yielding the returns you expected. Rather than taking the time and personal funds to physically improve the property hoping for a small increase in rents, consider selling it now and exchanging into new property which may be in a better location, allow more depreciation, generate higher rents, etc. This may immediately increase your cash flow.
Each year taxpayers are eligible to take depreciation deductions on their commercial/investment property until it is fully depreciated. It is a benefit to you at the time, but 25% of that depreciation is recaptured by the federal government when the property is sold. This tax can be deferred by utilizing a 1031 Exchange to purchase new property.
Many think that the IRS “like-kind” requirement forces taxpayers to exchange into the same type of property as they sold. Not true. A taxpayer can mix and match property types, as long as the property is held for productive use in a trade, business or for investment. Therefore, a taxpayer can sell a multi-family and purchase a vacation rental, or sell an apartment building and purchase commercial. Land and buildings, perpetual easements, leaseholds, tenant-in-common (TIC) and Delaware Statutory Trust (DST) interests are all qualified properties for an Exchange.
In fact, you can sell one property and deploy the cash proceeds towards down payments on two or three replacements through a single exchange to grow your real estate portfolio, thereby hedging the investment risk inherent in a single property. Alternatively, you can consolidate funds from the sale of multiple properties and exchange for one larger investment purchase. A 1031 Exchange gives you opportunity to maximize your investments.
Rather than sell a property outright, pay the 25-30% in taxes and have only the remaining funds for deposit into your low rate savings account to pass on to your heirs, you could exchange. If you are holding investment property that had been part of a 1031 Exchange, upon your death your heirs get the stepped-up basis. All the built-in gain disappears upon your death. What that means is that the value of the property at the date of death would pass through the estate to your heirs. If they decide to sell for that same appraised value, there would be no capital gain for them to owe tax on and the profits are theirs to do with what they wish, which a great benefit to pass on.
Why a Qualified Intermediary?
The IRS regulations state the taxpayer cannot have actual or constructive receipt of funds in between the sale and the purchase, and still claim tax deferred treatment. The Qualified Intermediary (QI) is the neutral third party to structure the 1031 Exchange on behalf of the taxpayer. As the largest Qualified Intermediary in the country, investment owners and advisors depend on IPX1031 to help them realize the benefits of participating in an IRC Section 1031 Tax Deferred Exchange. Although the QI’s main focus is to actually facilitate the exchange and control funds between the sale and purchase, at IPX1031 much of our role takes place prior to the exchange itself. We work in conjunction with clients, brokers, tax and legal advisors to guide them through the specifics of the Code, then apply a strategy to the taxpayer’s specific scenario.
With the current market moving as it is, an understanding of Section 1031 is essential to creating opportunities for investors looking for options to reposition assets, generate more cash flow and protect estates. Don’t “just pay the tax” because you think it’s the lowest it will ever be. Keep your equity and let it work for you.
No, selling land is not just like selling a house, and if you’ve acquired land that you are ready to sell you will want to follow these steps to maximize your market value and get the land sold.
Depending on how you acquired your land you may or may not know all of the aspects affecting the value of your property. Doing the basic research to better understand your property and the factors that may be attractive to buyers is where to start. It is good to know a little about the history of the property you own, and it may even become a selling point if you can connect your property with some noteworthy historical event. You can usually find out public information about previous owners with an online search of the county property assessor’s office. If the land you own has been in your family for generations you may be able to tell potential buyer’s about the usage of the land over time and how your family came to acquire it.
Other aspects that will affect how you price and market your property include zoning, liens and deed restrictions, access to sewer, topography, and the presence of water in the form of creeks, streams, springs, and ponds. Try to have some basic understanding of these factors first and then form a general idea of what uses may be appropriate for your land and why someone might be interested in purchasing your land. The biggest question to answer early on is – What use will bring the highest value to your property?
2. Work With a Land Agent
An agent experienced in land transactions in your local area can be a great asset to your research efforts and should be most knowledgeable about the market conditions affecting your property. A good land agent will be able to help you in understanding the highest and best use of your land, as well as have a list of potential buyers in their database.
Selling land requires unique expertise, so just hiring a residential agent that you know is generally not the best in terms of the experience needed for the competent handling of land marketing and sales. A good land agent will understand local zoning codes and have existing relationships with developers in the area that may very well be your most likely buyers.
The biggest difference between selling homes and selling land is that the land market in general is much less active than the home market. This doesn’t mean that your land won’t sell, it just means that it is expected to take longer to sell land in general than a property that has already been developed for a specific use. Patience is key when selling land.
The most important decision to make when bringing your land property to market is the initial listing price. Too high and your property will sit there for months or even years with no action. Too low and obviously you are giving away money if you don’t understand the full value of your property before putting it on the market.
You need to understand your own urgency level when it comes to setting a price for your property. If you are trying to sell quickly then don’t overprice the property. If you have all the time in the world and are looking to only maximize the long-term value of the property then maybe you can be a little more aggressive in setting a higher price.
Understanding the recent history of land values in your local market provides you the most relevant information about the current market value of your property. Be realistic about your price in comparison with the recent sales history in the area. If your listing is competently marketed and still sits on the market for months with no inquiries from potentially buyers then you are probably overpriced.
4. Know Your Buyer
Once you have completed your research and partnered with a local land expert to determine your market value you then want to get a full understanding of the most likely buyers of your property. While it is not bad to cast a wide net when marketing a property it can be much more effective in land real estate to target your marketing efforts to the most likely buyers for the highest value uses of your property.
For example it is key to determine if the best use of your property will be for commercial or residential purposes. Marketing land for commercial use where traffic count is often a big selling point is much different than marketing land for residential use where zoning density would be a key factor.
Buyers will want to know if their intended uses for the property are feasible and profitable. They will need to understand the zoning, deed restrictions, and any liens or easements affecting the property. Of course buyers have to do their own due diligence, but providing all the info you can is best when working with buyers interested in your property. Having a recent survey of the property is always a plus.
5. Market Effectively
These days almost all marketing for land is done with road signage and Internet marketing. The Internet is the dominant marketing tool you have in getting your land sold, and if your property is on a low traffic count road where signs have less of an impact then you will want to focus your efforts even more online. Drone photography is now the standard when it comes to marketing land property online. Have your property looking it’s best and get drone photography to highlight the most alluring aspects of your land.
Always focus your marketing efforts on the highest value uses of your property. You want to attract the buyers that are willing to pay the highest price for your land. Clearly highlight all the aspects of your property that would be of most interest to a developer who specializes in the highest uses that you have identified.
In conclusion, selling land presents unique challenges. Research your property to understand the basic information. Then partner with a local land expert to determine the highest and best use of your land. Based on this information determine the appropriate initial listing price factoring in your own urgency level in selling the property. Then target potential buyers and market your property providing the most relevant information you can to qualified interested parties. By following these steps you can sell your property in the least amount of time and maximize your property’s value.
We Can Help
Whether you’re looking to lease, buy, or sell commercial property, now is still the time to do it in Atlanta. The Meridian Real Estate Group has been assisting commercial clients for well over a decade and would love the privilege of earning your business. Our goal is not just to help our clients with a transaction, but to support the building of financial legacies through real estate. Call us today at 678-631-1723 or visit us online at www.themeridianway.com. We look forward to serving you.
So you’ve decided to list your home knowing the leverage you now have as a seller is the most robust it has ever been (and may ever be) in your lifetime. If you’ve spent a little bit of time and money making your house move in ready, you’re practically guaranteed to sell it within days of it hitting the market.
But there’s a catch. As a seller you hold all the cards. As a buyer, things are a little more challenging. If you haven’t gone under contract on your next home before selling your current one, what do you do? In the past, short term apartment rentals may have been an option, but with tight housing inventory across the board, it’s time to get creative.
- If you’re single, your options may be easier. One of our clients sold his home in Buckhead in a couple of days and hadn’t decided where he even wanted to buy yet. He was able to stay with a number of friends for a while as we navigated his home search through different areas of town to ultimately find him the perfect fit.
- If you’re married or have kids, family may be an option if they live in town. What better time to have an extended stay with Nana and PawPaw if they have the room? Or maybe siblings who would be willing to let you share their space for a bit.
- Facebook is a great resource for reaching out and asking for recommendations of short-term housing options. Be sure to ask on both your personal page as well as any groups you may be a part of as well as Facebook marketplace.
- Another possible resource is Air BnB. There are some that are available for longer terms and you may even be able to negotiate the price down due to the extended time period you will require.
- Extended stay suites may also offer an alternative. There are some that are quite nice and the ability to pay month-to-month will provide you the luxury of time as you search without feeling like you’re crowding anyone else’s personal space or fear of being asked to vacate.
Although affording you the opportunity to not be rushed into purchasing your next home, all of the above options will require you to move twice essentially. And while there may be room for your furniture and belongings with friends or family, there won’t be with the other choices in which case you will either rent something like PODS or a short term storage facility unit.
But what if the above solutions can’t or won’t work for you? Don’t despair, your real estate agent now gets to step in and do some serious negotiating on your behalf! In this market with a good home, you will have multiple offers and thus leverage to ask for what YOU want and need.
- Include the leasebackas a part of the Purchase and Sale Agreement (also known as a sale-leaseback, rent-back or post-closing possession agreement), in which you close the home sale like usual and then become the purchaser’s temporary tenant for a period after closing. Your rent covers the cost of their mortgage payment. This scenario requires a purchaser willing to work with you, but in today’s market this is becoming more common to win the deal.
- Include in the special stipulations a flexible closing date which will allow you a longer period of time to close in order for you to find a home. This can be anywhere from 60-90 days or longer depending on your buyer’s situation. We were working with a client who lost out to another buyer not because they offered more money, but because they were extremely flexible on their closing date which allowed the seller to find their new place first.
In normal markets, the above options wouldn’t be as readily available. But we are most certainly NOT in a normal market. The great thing about these is they allow you to look for your new residence from the comfort of your former home. No shacking up with friends, depending on in-laws, storage facility bills or double moving charges.
Hopefully you feel more confident in listing your home as you now have multiple options for doing so without feeling rushed to buy your next one. Happy selling!!
By Holly A. Morris, Realtor
The Meridian Real Estate Group
For those who believe an impending doom is on the horizon, here is some bad news: It’s not going to happen. In this second of two opposing opinion pieces on the housing crash, Matthew Gardner shares why we won’t see any mythical bubble bursting.
This is part five of Inman’s Bubble Trouble series on the U.S. housing market in 2021. Don’t miss yesterday’s counterpoint to this essay: The housing crash will be even worse than I predicted.
On face value, I can certainly see why some are worried about how much home prices have been escalating — not just during the pandemic period, but since housing prices started recovering back in 2012.
Home price growth has been outpacing wage growth for a long time, with median prices up more than 113 percent since January 2012, while wages have only risen by a far more modest 30 percent.
Previous installments in Inman’s Bubble Trouble series:
• Bubble Trouble: Is the market on a collision course with disaster?
• Bubble Trouble: How agents are managing client anxiety amidst bubble talk
• Bubble Trouble: 4 stats that will give you hope (and 4 that won’t)
• Bubble Trouble: The housing crash will be even worse than I predicted
Moreover, in 2020, prices increased by more than 9 percent and were up by a record-breaking 17.2 percent. between March of 2020 and March 2021. As a result, mumblings of the imminent bursting of a new housing “bubble” are now being heard far and wide across the US.
I’d like to start off by addressing those who believe impending doom is on the horizon. I am afraid I have some bad news; it’s not going to happen.
While it’s easy to argue that such a rapid increase in home prices is sure to end badly — as it did in 2008 and 2009 — you would be wrong to conflate these two time periods. Today’s housing market is markedly different from the one we saw back in the 2000s.
Allow me to explain why.
For more than six years, we have suffered from a woeful lack of homes to buy in the U.S., while simultaneously adding almost 10 million new households. Obviously, not every new household translated into a new homeowner, but given demographic growth and the ongoing shortage of inventory, it was enough to tip the scale between supply and demand, resulting in rapidly rising home values.
So, why are there so few homes for sale?
This is probably one of the questions I get asked most. The first reason is that Americans aren’t moving as often as they used to, which limits supply. In the early 2000s, we used to move an average of every four years, but the number today is over eight years. If there is less turnover of homes, supply remains scarce, and prices rise.
Without a doubt, the lack of credit quality is the most significant difference between today’s market and that of the 2000s, but gone are the days of “low-doc” or “no-doc” loans that allowed buyers to essentially make up their income to qualify for a mortgage.
Instead, according to Ellie Mae, what we saw in 2020 was 70 percent of mortgage originations going to borrowers with proven FICO scores above 760, and the average credit score over the past five years was a very high 754.
Although sub-prime borrowing still exists — and there is a rational place for it — the share of borrowers with a credit score below 620 was just 2 percent last year. For comparison purposes, it was 13 percent in 2007.
It’s also worth pointing out that back in 2004, a full 35 percent of mortgages were ARMs, or so-called “teaser loans.” When the rate reverted on these loans, it forced many homeowners into foreclosure because they could no longer afford the monthly payment. Fast forward to today, the share of ARMs in March of 2021 was just 2.4 percent.
Finally, I like to look at mortgage credit availability, and the Mortgage Bankers Association has some very rich data on this. The MBA’s index, which is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.), acts as a very useful bellwether when it comes to the health of the housing market.
Although the index has been rising since last fall (suggesting more freely available credit), it is still 85 percent below where it was in 2006, suggesting that lenders remain cautious.
The bottom line is that credit quality and down payments are far higher today than they were in the pre-bubble days, and mortgage credit supply remains very tight relative to where it was before the collapse of the housing market.
So far, I am not seeing a correlation with the “bad old days” — are you?
It’s irrefutable that home prices have been increasing at well above average rates for several years now, and that is cause for concern, but not because of any impending bubble. Rather, what concerns me is the impact rising prices is having on housing affordability.
Current homeowners are in good shape and, according to the most recent Federal Reserve Financial Accounts of the U.S. report, are currently sitting on over $21 trillion in equity.
Furthermore, the latest data from Attom Data Solutions indicates that over 30 percent of homeowners had at least 50 percent equity in their homes at the end of last year. But this doesn’t help first-time buyers who are so critical to the long-term health of the housing market.
Keep in mind, there is a wave of first-time buyers coming; over the next two years, 9.6 million millennials will turn 30, and Gen Z is close on their heels. Given where prices are today, the question should be: Where will they be able to afford to buy?
This, in my opinion, is a far bigger issue than any mythical bubble bursting.