How to Use Equity to Move to Your Next Home

It’s time.

I’m here to tell you it’s time. You’ve owned your home for a while. Years, in fact. In that time the real estate prices have been increasing and your equity has expanded. So now it’s time to move to a house that will fit your equally growing family; or shed that space that you don’t need any more.

If this description fits you then you may be in a perfect position to move to your next house using the equity from your current home.  But how do you do that when your down payment funds are locked up in your home. And how do you know if it’s the right time to move?

Let’s answer the second question first. Home prices in the Portland metro area continue to be on the rise. The inventory squeeze in Portland and the predicted future influx of population makes the chances of a pricing downturn miniscule. What does this mean for you as an owner? It means that though the sales price of your current home will rise, the acquisition price of your next property will also rise. Add to that the creeping increase in interest rates, and my recommendation will, in 99% of clients, be to move now rather than wait. Hesitation won’t work to your advantage.

If you’ve decided to move, but need to use the equity from your current home to purchase your next, how on earth do you manage that? Should you start with selling your current home or buying your next before selling?  Both have risks and rewards, and in this post I’ll quickly review both.

Buy first

Inhabit Keys.JPG

Many people choose to purchase their new home first. Some buyers with good credit and income - and a lot of equity - are able to buy a new home before selling. Using a home equity loan, as allowable by your lender, permits buyers to pull money from their current home and use it for a down payment for their next home. The advantages of this are obvious, as they allow buyers to look for a new home on their own timeframe, without the pressure of selling their home first. They also eliminate the need for financing contingencies beyond the standard appraisal which all lenders require. 

This means that buyers are able to remain as competitive as possible in what continues to be a seller’s market. The risk is that buyers could end up with two mortgages for an extended period of time, or their current home may sell for less than expected, putting owners in a financially tight situation. 

Buy/sell using a contingency

Another option is to write a clause into the sales contract making an offer contingent on the sale of a buyer’s current home. This conditional sale allows a buyer to make sure they can secure a new home before selling their current home, eliminating most of the financial risk. It also often possible to coordinate closings so that the buyer can move directly into their new home eliminating the need for moving twice or finding storage.

However, as long as it remains a seller’s market, the stars must align just right for this option to work. You and your Realtors must find a seller willing to entertain a contingent offer, and if a competing buyer makes an offer that is not contingent on the sale of their home it’s difficult for the contingent buyer to win out. It also puts pressure on the person with the contingent offer to locate and secure a new home in a short time-frame once they have an offer on their current home. And if you write an offer on a home before securing an offer on your current property, the offer remains “bumpable” – meaning that someone else may write an offer on the home and the seller may opt to choose it unless the contingency can be removed. It’s a complicated approach with various moving parts that need to be timed right (and probably deserves to be examined in more detail than it is here). The contingent offer option can work, but a buyer may have to be quite patient before landing an offer that works.  

Sell first

For most clients, this is the option I like best. Have you ever heard the phrase measure twice cut once? How about sell first move twice? I just made that up, but it’s what I often recommend. What?! Move twice?! Well, hear me out. Selling first removes the financial risk associated with carrying two loans. It allows a homeowner to know exactly what they’ll net with the sale of their home and therefore the amount of money they have to put down on the next. With the abundance of available moving and storage companies, people who sell first will often store their belongings and find a short term corporate or Airbnb rental while they search for a new home. Some people even have fun with it, exploring a new part of the city that they may not have spent time in before. This approach removes the pressure of finding a home in a limited amount of time, as might happen with a contingent sale or when someone has the financial pressure of carrying two loans. This, ultimately, is the biggest advantage. Clients who have gone this route invariably have said that the stress of moving twice was more than offset by knowing exactly how much they could afford and the ability to take the time to find the right new home – not settling for a “just ok” fit – without feeling under the clock.

If you want to explore these options, or tell me that it’s crazy to think you’ll sell first and move twice, give me a call or come in to talk and we'll find the right approach to getting you into your new home. 

- Amy Seaholt

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Understanding Radon

AND A COOL INTERACTIVE MAP, TOO!

 The map areas correspond to zip codes. Click on each for a summary of information about radon in the area.

The map areas correspond to zip codes. Click on each for a summary of information about radon in the area.

Radon is dangerous. I think just about everyone knows that. But how dangerous is it? That's where things start to get a little fuzzy. A friend and colleague recently endured a few months of radon poisoning with almost deadly results. This can happen to anyone that lives in a home with exposure risk. It's important to understand this deadly gas, why you should be aware of it, and how to mitigate the risk to you and your family.

The State of Oregon publishes an interactive map of indoor radon risk levels that was recently updated. This is a useful tool, but be aware that no matter the risk level in your area, you can still encounter a radon problem.

SO WHAT IS RADON?

You can't smell it, see it, or taste it. It's literally radioactive. It is the second-leading cause of lung cancer in the United States. But what in the world is this stuff and why does it want to kill us? Let's go into geek-speak for just a second.

 Not the best illustration, but it's colorful!

Not the best illustration, but it's colorful!

Radon is a colorless, chemically-unreactive, inert gas discovered in 1899 partly by Ernest Rutherford and in 1900 partly by Friedrich Ernst Dorn. It is 9 times denser than air, which is an important factoid to remember. It easily penetrates almost any material in a building, including sheetrock, concrete block, wood paneling, and most insulations.

Radon is naturally occurring in the ground and is the result of the breakdown of uranium present in soil, rock, and water. It occurs in several isotopic forms, of which radon-222 occurs most frequently. When this gas is released into the environment, it results in the formation of decay products that are radioisotopes (a chemical element that has an unstable nucleus and emits radiation during its decay to a stable form) of heavy metals (polonium, lead, and bismuth). These decay products can easily be inhaled because they rapidly attach to other airborne materials (like dust). It also may be ingested if it is highly concentrated in groundwater (well water), but the inhalation of radon is of higher concern.

WHAT ARE THE SYMPTOMS OF RADON EXPOSURE?

Respiratory problems are the most common signs of radon-related distress. These problems can include: a persistent cough that doesn't get better, difficulty breathing, chest pains, the coughing up of blood, wheezing, hoarseness and recurring respiratory infections such as pneumonia or bronchitis. Radon exposure can lead to lung cancer.

A lesser known symptom of radon exposure is neurologic issues. Anxiety, memory loss, and depression could be a sign of radon exposure. However, brain health and function issues have many, many other possible causes, so this is not a symptom often mentioned.

Serious effects from high radon levels are cumulative over a long period of time. It's important to periodically test for radon, but the presence of high radon levels in your home or a home you are thinking about buying is not a reason to panic.

WHERE DOES RADON OCCUR?

Radon is found in every state in the country. If you take a look at the map and find that you are in an area that is considered low-risk, you still may encounter a radon problem. It often enters the home through cracks in floors, cracks in walls, gaps around service pipes, joints between floor and walls, gaps around drains/pipes, etc. You may have no problem at all with radon while your immediate neighbor is dealing with extremely high radon levels.

HOW DO I TEST FOR RADON?

 Okay, so this vat is 100% more like the stuff the Joker falls into than it is like radon, but I'm running out of visuals, here. 

Okay, so this vat is 100% more like the stuff the Joker falls into than it is like radon, but I'm running out of visuals, here. 

Short term, long term, and continuous tests are available for radon. Tests should be conducted in the lowest livable area of your home (remember how radon is denser than air?). If you are considering selling your home, I highly recommend conducting a short term radon test before listing the home on the market. It doesn't cost much and is very much worth knowing the results before you're in the middle of a transaction!

Most people start with a short term test to determine whether or not further testing is necessary. The test takes between 2-7 days and are then mailed to a lab to determine the results. These are available at most home improvement stores and online. 

Long term tests measure radon levels between 90 days and a year. They are more accurate than short term tests because radon levels can vary significantly from day to day and month to month. These tests are usually available through state agencies and online retailers.

Continuous radon testing devices plug into an outlet and can be used for both short and long term testing. They will give you a running average radon level. These are available from online retailers such as Amazon.

Home buyers: It's important to note that if you purchase a home in summer and conduct a radon test, you should conduct another test in winter when radon levels are more likely to be an issue.

SHOULD I TAKE ACTION?

One out of every 15 homes in the U.S. have radon levels that should be lowered. Fortunately, reliable techniques exist to reduce radon levels in homes so that almost any home with high radon levels can be fixed. If you have a radon problem, you can hire an experienced radon contractor or accomplish the repairs yourself.

The EPA recommends doing a second test if an initial short-term test registers 4 picoCuries per liter (pCi/L) or higher. A long term test is ideal, but you can perform a second short term test if you need results quickly. If the second test results in levels higher than 4 pCi/L, consider taking action to mitigate radon levels in the home.

WHAT CAN I DO TO MITIGATE RADON IN MY HOME OR REDUCE RISK?

 Ventilation = good

Ventilation = good

It does take more than just sealing cracks in the foundation to mitigate radon risk and/or exposure. Active soil depressurization or fan and exhaust systems have proven to be cost-effective and reliable. 

Radon that escapes out into the air is not a problem as it quickly becomes diluted. Therefore, ventilation is key. Ventilation can be increased through opening doors, windows, and vents. Many people like to block their crawlspace vents in winter and/or install additional insulation in their crawlspace. Blocking crawlspace vents provides very minimal energy savings so unplugging these vents and possibly moving some insulation around may be all it takes to mitigate a mild to moderate radon problem. A heat recovery ventilator (air-to-air heat exchanger) can also be installed to increase ventilation.

All information above is provided for educational purposes. It is always recommended to consult a radon professional if you have any concerns about radon in your home.

- Brandi Whitaker

Oregon Tenant Protection Bill

This seems to be a subject much talked about amongst real estate agents, property managers, landlords, tenants, and homeowners (i.e. everyone). Yet, if you Google "Oregon tenant protection bill" or "Portland tenant rights bill", all you'll get is a few cut and dry articles from the Oregonian and other local news blogs and not much else. Most of what you'll see will be about other legislation that has already passed.

What are we afraid to talk about? I'm a Portland area real estate agent and I eat complicated, controversial topics for breakfast. Okay, no, I usually eat eggs for breakfast. Sometimes cereal. Occasionally a snack bar... 

But that's beside the point. Let's boldly go where few have gone before.

The original version of this article can be found here.

 Boldly blogging where no one has blogged before.

Boldly blogging where no one has blogged before.

The housing shortage is driving legislation.

People are passionate about this subject because Portland is in a housing shortage. We need approximately 24,000 units to meet demand (read my blog about all the people moving here). Barring economic catastrophe, a housing shortage will always cause home values to rise and rents to increase. This places undo pressure on tenants and home buyers, while current homeowners get to watch their net worth rise and landlords have the opportunity to raise rents.

The only real solution to a housing shortage is to build more housing but of course we only have so much space available. But, hey, we're Portlanders, and if we can find a weird way to help solve this problem, by golly, we're gonna leap down that rabbit hole.

Multnomah County and Enhabit (no relation to Inhabit) are launching a pilot project called "A Place For You". It aims to build ADUs (accessory dwelling units or "tiny homes") in Portland resident's backyards. These will be used to house homeless families rent-free for 5 years in exchange for a tax abatement to the property owner. After 5 years, the homeowner gets to keep the ADU to be used as they see fit. The pilot project is starting with just 4 units but over a 1,000 homeowners have expressed interest.

It almost sounds like an episode of Portlandia. 

 It's okay if you don't know what this is. What am I saying? No, it's not okay. It will never be okay. Things will never be the same again!

It's okay if you don't know what this is.
What am I saying? No, it's not okay. It will never be okay. Things will never be the same again!

This is an interesting idea but creativity isn't going to get us very far in the short term (and that doesn't get politicians re-elected). The housing shortage is enough of a hot topic that politicians such as Ted Wheeler and Tina Kotek have thrown their weight toward repealing the statewide ban on rent control (although last year Ted Wheeler said he supported this for the state but not in Portland, where he would adopt other measures first, he seems to have now changed his position). In the election last year, Chloe Eudaly upset incumbent Commissioner Steve Novick despite having no political experience. Her grassroots campaign for the Portland City Council was focused entirely on tenants rights.

Now that we're firmly into 2017 it means that politicians are putting their legislation where their mouth is.

In Portland, new rental ordinance is already in place.

Before we talk about the infamous House Bill 2004, let's quickly take a look at the tenant protection ordinance that took effect back in February this year. This was an emergency ordinance brought forward by Chloe Eudaly and Ted Wheeler that was passed unanimously by the Portland City Council. It requires landlords to pay moving costs for tenants that are evicted without cause or for tenants that must move because rents have been increased by more than 10 percent in a 12 month period. The one exemption is for landlords that have only one rental unit. Moving costs paid by the landlord range from $2900 to $4500 depending on number of bedrooms.

Attorneys are already dueling in court over the legality of this ordinance but for now it stands.

 Not that kind of duel. Although court cases might be more interesting this way. 

Not that kind of duel. Although court cases might be more interesting this way. 

This brings us to the Tenant Protection Bill (HB 2004) that was recently passed (31 in favor - 27 opposed) by the Oregon House of Representatives and has now moved along to the state Senate for review. There are a lot of nuances to this bill and several compromises were made to get it this far. Remember, this is NOT law yet.

Here's a few salient points of the pending bill.

  1. After 6 months, no-cause eviction of tenants renting month-to-month are banned (before 6 months no-cause eviction of tenants renting month-to-month are allowed with 30 days written notice).
  2. After 6 months, evictions are allowed for month-to-month (30 days after the effective date of this legislation) and fixed term tenants (immediately after the effective date) with 90 days written notice for specified reasons, such as renovations, repairs, when the property is scheduled to be demolished, or for the sale of the property. Landlords must pay one months rent to cover relocation expenses in this case. (However, if the reason is repairs/renovations, the landlord must offer a new rental agreement back to the evicted tenant before other potential tenants.)
  3. After 6 months, evictions are allowed for month-to-month and fixed term tenants with 30 days written notice for cause. (Examples of cause: non-payment of rent, violation of drug or alcohol program, pet violation, substantial damage, etc. There are additional provisions that govern "cause" and timelines that a landlord should be fully aware of.)
  4. If the landlord terminates the tenancy in violation of the provisions, the landlord would be required to pay 3 months of rent to the tenant in addition to potential damages. This applies to both month-to-month (30 days after the effective date) and fixed tenancies (immediately after the effective date).
  5. Exceptions to the above exist for landlords that own four or fewer rental units or for landlords that live on the property and own two or fewer rental units.
  6. The bill also allows cities and counties to adopt their own rent control program which effectively abolishes the statewide ban on rent control.
  7. An exemption to rent control is provided for any new residential development for a period of 5 years from the date of issuance of the first certificate of occupancy.
  8. If a city or county passes a rent "stabilization" program, it must provide landlords with a fair rate of return and a process for the the landlord to petition for permission to increase rent in excess of the amount allowed in the program when needed to achieve a fair rate of return.
 The rubics cube of government. Nuff said.

The rubics cube of government. Nuff said.

A few of the compromises that allowed this bill to pass include the exemption for landlords that own 4 or fewer units, reducing mandatory relocation assistance down to one month (originally the bill called for three months even when the eviction is for an allowed reason), and the 5 year exemption for new residential developments.

What does this mean?

So, does this bill seem sensible? Why would anyone object to it? Why was it passed on such a slim margin and why is the battle for it in the senate expected to be difficult?

I think the biggest concern is with point 6 - 8. Rent control is only fiercely debated when you don't talk to economists. Meaning, economists largely have a consensus of opinion that rent control results in a reduced supply of property to the market (which of course drives rents and home prices even higher).

Wait a second, reduces the supply? Didn't I just say earlier that this problem is a result of a housing shortage? 

Based on historical data, most economists viewpoints, and studies that have been conducted on rent control, enacting rent control (or "stabilization") causes housing shortages to become worse than if no controlling measures were put into place. I don't like it when legislatures pass bills with provisions that aren't supported by the data. (Read this article and this one and this one to gain some perspective on what economists think about rent control)

I don't think the 5 year exemption for new construction or vague "fair rate of return" language is enough to curb the negative side effects of rent control but politicians only have so many tools in their belt when in comes to housing. Those tools tend to be very blunt instruments. Even though a screwdriver might be needed, we're instead getting a hammer. Or maybe a mallet. Or maybe even a sledgehammer. Except I don't think Peter Gabriel is the solution here.

 This analogy is too good for a caption.

This analogy is too good for a caption.

The merits of points 1 through 5 above really come down to your point of view. I won't delve into those here other than to say that I see both the positive and negative ramifications to being this restrictive about evictions but I'm open minded about the ideas.

HB 2004 hasn't passed the senate yet (it was just referred to the Human Services committee). I'll be following along to see if it passes and is signed by the governor, or if it dies, or if it becomes reborn as something more palatable. This is an interesting time for anyone that is a landlord or tenant!

Do you own a rental property? If so, what are your plans? If this bill passes, much of the legislation will go into effect either immediately or within 30 days. I'm a Portland area realtor and can assist you in deciding what course of action makes sense for your investment. Contact me if you have questions.

- Brandi Whitaker

Property Investment and You

As a property investor,

I’m frequently asked for advice about buying rental properties and how to achieve that goal. There are many factors as to how to make this happen, but I’ll focus on the first time buyer that wants to buy a home and then buy another house or duplex as an investment.

To achieve this there are a few ways to go about it. One way is to let the first purchase appreciate through either time or sweat equity and then refinance to pull cash out or take out a home equity loan in order to have funds for the the down payment. This is a very common direction to go and works quite effectively. In fact, this is how I bought my first rental 20 years ago.

Would I do it again?

I would, but I now have an alternative suggestion to buying investment properties and that is to start with the investment as opposed to purchasing a single family home and parlaying it into an investment property. A duplex is the perfect start as you can live in one side and rent out the other. If the right property is identified you may even be cash flow positive from the start, allowing you to grow your cash reserves for a downpayment on the next investment.

I’ve advised multiple clients to follow this path and they have all been grateful of this direction. In one transaction a young couple purchased a nice duplex in need of some cosmetic touches. After spending nearly a year working on their property they decided they didn’t like living in a duplex so after the home improvements they refinanced to pull some cash out and purchased a single family home and kept their duplex as an investment property. I honestly feel they would have never purchased the duplex if they started with a single family home and now they have the potential of 3 rental units.

In another case, I sold my client a duplex, after looking at many single family homes and, instead of parlaying the duplex into another property, he has decided to stay with one investment property and one side of the duplex nearly pays his entire mortgage payment.

So my advice today:

Start with the investment property and when the time is right move into the house of your dreams. 

-Byron Twyman