Categories
Blog

“Reality TV” vs. Reality: How The “Highlight Reel” View of Life is Impacting Your Perceptions

Perception versus reality is a tricky thing. It’s easy to get caught up in a fantasy world and lose track of what’s real and what’s not. Whether it’s a perfect career, an ideal partner or your dream home, we tend to build up ideas in our head only to realize the grass isn’t always greener on the other side. Reality television is a perfect example of people manipulating what’s real for the sake of entertainment.

Why We Should be Critical of “Reality” Media

From the Real Housewives of who knows where, to the Kardashians, to various house flipping shows, there is an excess of reality television almost everywhere you look. And oftentimes, there’s nothing real about these shows at all. Some series own up to their fabricated , while others continue to push a narrative that’s just plain fake.

Some of the biggest culprits of this are house flipping shows. They make it seem simple to find an abandoned home, get an investor to buy it and convert it into a stunning, modern palace that most of us would be honored to call home.

Real estate investor Engelo Rumora offers this piece of advice to those considering quitting their day job to try and get rich quick by flipping houses: “replace those rose-tinted glasses with real ones.”

He says that most reality TV flipping shows “make the average viewer think that they too could invest just a little money, turn a house around and sell it for sky-high profits. These shows often make the investors look like knights in shining armor, but those who’ve worked in real estate can tell you that most of the figures they show on TV are .”

According to Rumora, most of the numbers that viewers see are fabricated and created only for the show. He says, “They don’t take many costs into account. Things like fees, holding costs, commissions, closing costs, etc. are all left out.”

House Flipping on Social Media

Many times, social media paints a picture of someone living a fantasy life, filled with beaches, champagne and delectable food. But other times, social media is where people show their true selves and their daily challenges.

For example, on television you may watch an hour-long show where massive renovations take about two or three minutes of airtime. But if you follow someone on social media who’s actually going through a huge construction project, you’ll see all the dirt, grease and grind that goes into a home renovation. It’s no easy task, and timelines and budgets oftentimes go above and beyond initial estimates.

What Does Social Media Get Right?

If you want to get a real look at a home improvement project, check out home improvement bloggers who document their renovations from beginning to end on their websites and social media accounts. Bloggers tend to share more of the nitty gritty details of what went into a project and how they were able to handle any unexpected roadblocks. Plus, they may even spark some inspiration for your next home project!

What Does Social Media Get Wrong?

While bloggers can help give you a realistic view into the world of home construction, other influencers may use social media to exaggerate how well things are going.

Whether it’s showing a real estate investment project going off without a hitch or a home renovation where construction was ahead of schedule and under budget, many people tend to embellish on social media to make things appear better than they are. And hey, it’s easy to make everything look perfect on social media, after all, no one forces you to post any of the bad stuff.

It comes down to what we touched on earlier, perception vs. reality.  That’s why it’s so important to not compare your life, job, home remodeling project, or anything to anyone else. It’s impossible to truly know what their reality is.

House Flipping on TV

More and more people are interested in turning “trash” into treasure, and who can blame them? The problem is that many times the challenges house flippers face aren’t given nearly the same amount of airtime as the finished product, meaning many folks don’t know what truly goes into a major renovation.

What Does Reality TV Get Right?

Don’t get us wrong, we don’t think reality TV and social media is all bad. Enthusiasm for flipping homes is surging, with more than 200,000 Americans flipping homes in 2017 alone — an 11-year high!

“There are definitely more people interested in flipping because they watch these shows on HGTV,” Elizabeth Kee, associate broker for CORE real estate tells the New York Times. She says she frequently fields calls from people with no real estate experience who have a newfound interest in investing in homes to flip.

And while house flipping shows do face some criticism from real estate experts, they do show some of the real issues buyers deal with. For example, many of the shows will document the hassle of getting building permits, as well as how to handle foundational problems and even tackling asbestos infestations.

What Does Reality TV Get Wrong?

What’s unrealistic about house flipping TV shows is how quickly such problems are handled, setting impractical expectations for home buyers and real estate investors who find themselves in similar situations. For example, shows like “House Hunters,” “Fixer Upper” and “Property Brothers” follow couples on their home buying journey while showing the ups and downs of their experience. But, that’s about as real as it gets.

Bobi Jensen, who appeared on “House Hunters” tells Kiplinger that things weren’t always exactly as they seemed on TV. In fact, she says producers told her they typically choose couples who’ve already closed on a property, even though the show centers around people supposedly searching for their next home.

“I wasn’t thinking this is something that’s going to be seen by other people as my real life. It wasn’t until I actually watched the episode . . . that I realized I was preaching to the world about the necessity of more space when I hadn’t even lived that way myself.”

Patrick Hurst, owner of Hurst Design-Building-Remodeling, tells a similar story. His company appeared on “House Crashers,” which aired on the DIY Network. The show searched for homeowners at home improvement stores and then followed them back home to complete a renovation project on the spot. “When you see a large project get finished quickly on television, what you don’t see is all the scrambling that goes on behind the scenes to get the job done on time,” Hurst says. “On screen they show you three or five people working, but it’s really like 30 people in the background working.”

At the end of the day, those interested in flipping houses must do their research before jumping in. Following social media accounts and reality TV shows is just not enough to prepare yourself mentally, physically and financially.

How Perception Impacts Reality

The main concern with house flipping shows is they don’t truly show how long it takes to go house hunting, get through closing and all the hurdles in between. Perception may be that the entire process takes a couple of weeks, when in reality, it typically takes several months, at a minimum.

These shows tend to gloss over the fact that buyers first need to determine how much they can actually afford and understand their mortgage options. Not to mention tour dozens of homes before finding one that matches what they’re looking for, negotiate to get to a price that both the home buyer and seller agree upon, and did we forget to mention the mounds of paperwork? Yeah, somehow that gets skipped over in reality TV.

We don’t tell you all this to deter you from buying or selling a home, rather we want you to really understand and be prepared for everything that goes into the process, not just what’s as seen on TV!

Categories
Blog

Selecting the Right Property for Investment

Joel Cone is a freelance writer based in south Orange County, California. For nearly a quarter century Joel’s career — both as a journalist and as a marketing communications specialist — has focused on the residential and commercial real estate industries, as well as the legal community. After a decade as a staff writer for the Daily Journal Corp. group of newspapers, Joel was a regular contributor to California Real Estate magazine for the California Association of Realtors; was the original Orange County reporter for GlobeSt.com; wrote executive profiles for OC Metro magazine; and has been published in a number of real estate-related publications.

The choice of real estate-related shows on television can give anyone the idea that investing in real estate is a worthwhile endeavor. It can be, but for any investor – seasoned or novice – there are some fundamental principles to keep in mind when it comes to selecting properties.

Regardless of the present state of the economy or the real estate market, any legitimate investor will not start looking at properties without first determining the ultimate goal desired. That goal depends entirely on the investor’s exit strategy.

Here are the two basic exit strategies most real estate investors adhere to:

  1. Buy and hold. The investor wants to collect a portfolio of rental properties to generate a steady income stream over a period of time, thereby becoming a landlord.
  2. Buy, fix and sell. Better known as “flipping,” in this scenario the investor wants to purchase desirable properties at as low a discount as possible so as to have a good payday at the end when each property is finally sold.

Once an exit strategy is selected, then locating and securing properties that fit the investor’s exit strategy is much more cut and dry.

Investors Learn to Adopt Strategy to the Market

Buy and Hold
Once the question of exit strategy is settled, where and how to buy good properties that fit those strategies is as individual as the investor.

While some investors do not mind buying in different markets around the country, others like investor, author and trainer Tony Alvarez prefer to stay in their own backyard like he has in the Antelope Valley area of Los Angeles for many years.

A former appraiser, Alvarez is a true student of his market, keen on knowing the local economy and housing statistics. In such a volatile market as his, Alvarez said that a long-term hold of an asset is not forever, but only until the market peaks before he sells.

“An investor is somebody buying one unit or a whole complex. They are usually making their decisions based on return of investment and calculating capitalization rates and stuff like that,” Alvarez said. “When I look at purchasing assets, I want to have more than one exit strategy when I make my offer. One eye is on cost of construction and the other eye is on the ability of that asset to generate cash flow. I use a gross rent multiplier.”

When it comes to buying and holding properties in Denver, Colo., attorney and investor Bill Bronchick also looks at the financials except his strategy calls for buying properties that can demand a rent that allows for a 25 percent cushion above total costs (principal, interest, taxes and insurance). After that, he looks for properties that allow him to get in and out with a minimum of repairs before renting it out. And his last requirement is that the property must cash flow.

“You want to be in an area that in terms of long-term growth is going to keep its value,” Bronchick said. “It’s a balance between cash flow and future potential. You want something that’s right in the middle of the pack. Stick with lower middle class properties that are just at or just below the median price for the city.”

Andy Heller, a longtime investor in the Atlanta market, coaches and trains wannabe investors. Unlike Alvarez and Bronchick, however, Heller does the buy and hold strategy with a tweak…

Instead of buying and holding a property over a long period of time, Heller prefers to offer up his properties to his tenants as a 3-year lease option. Doing so allows him to enjoy the tax benefits of being a landlord, while also giving the tenant a sufficient amount of time to either exercise the option to buy the property outright or to either extend the option or to simply move out.

To Heller, the most important factor is finding a property with a sufficient investor discount.

“My model is to lease purchase a property. I do not use a Realtor. I need a 10 percent discount if everything is perfect. I don’t need a 25 percent discount so I know there’s more properties out there for me,” Heller said.

Next, he looks for properties that satisfy his exit strategy – those that will make a good lease purchase to a quality tenant base. With Heller’s model, that’s middle-income properties. Therefore, the investor must know with certainty what the middle-income range is for the market they are working.

Lastly, after locating a property with adequate investor discount, in a middle income neighborhood, the final factor Heller focuses on is the area’s schools. The schools must be good in order to attract the high quality tenant/would-be buyer who would pay a premium to live in the area where his properties are located.

Flipping Out
Being both a real estate broker and a general contractor, Scott Mednick knows what he is looking for when it comes to locating properties with potential to flip. Working throughout the Southern California region, he has established a methodical approach to selecting potential investment properties.

“I’m a negative Nellie. I look for everything wrong with the location first,” Mednick said. “Then I look at what’s right with the house. I try to buy the biggest, ugliest house in the neighborhood.”

For Mednick, the determining factor is strictly price. Before he even inspects the property he has gone on the MLS and done his homework so that he is at least 90 percent sure about the property ahead of time.

“I figure what the maximum sales price could be for that area. I’m going to do the nicest house in the area and get close to that price, backing off the rehab costs, the carrying costs, and what I’m buying it for. If there’s a 10 percent profit at the end, then it’s a go,” he said.

It’s how you play the game

Being a real estate investor is much like playing a game of chess. It all comes down to strategy. Every move an investor makes has to be with forethought and the end result in mind – the exit strategy.

After that, determining where and how to buy properties is an individual decision. For some investors check out the local multiple listing service and build relationships with local Realtors to get the scoop on new properties before they hit the market.

For others, it’s buying properties at auction, utilizing websites such as Auction.com as a prime source of information to find out when and where the auctions are being held and how much the opening bid will be.

But no matter the eventual purchase method, the most successful investors are the best students of their market when it comes to determining a property’s investment potential.

This is an exclusive article from Auction.com, LLC, the nation’s leading online real estate marketplace. Founded in 2008, the company has sold nearly $20 billion in assets since 2010. Auction.com has more than 900 employees and offices in Irvine and Silicon Valley, California as well as offices in Atlanta, Austin, Denver, Miami and Newport Beach. Visit us at www.auction.com, or on Twitter, Facebook and LinkedIn.