Katalina: Yolanda, before we delve into the question asked by Alex, can you please explain to us what is meant when people say that they are staging their home or their office for a sale?

Yolanda: Staging a home means that the home owner or realtor calls in a designer who works with the existing space and usually the existing furniture and repositions things in order to maximize openness and space and will then add accents that help accentuate the feeling of comfort and inspire the buyer to feel engrossed in the space.  For me staging is all about creating a dream and an inspiration. The simple way to describe staging is “merchandising a home, space or office”.

Katalina: So, going back to Alex’s question: “why is staging important”?

Yolanda:  It is important because staging raises the perceived value of the home. By giving the home a fresh look, clearing out all the knickknacks that are too personal and not useful to the target market, removing furniture that looks to be below the value of the home, bringing in certain quality pieces that enhance what is already there, mixing in textures that are comfortable and warm, the designer makes the home look more luxurious than the price it is selling for- therefore increasing the perceived value.

Katalina: So when you take on a staging project, is it important for you to know the target market?

Yolanda: Absolutely. That is where I work closely with the real estate agent who has already taken on the listing and put a listing price on the home. It is important to me to understand the neighborhood, the demographics and get a general profile of the target buyer.

Katalina: What are all the elements you consider before you begin to stage a home?

Yolanda:   The size of the home is important, the architecture, the neighborhood and the listing price are all considerations. For example, a five bedroom home will be staged more deliberately for a family with children. An older home with many rooms and a closed floor plan will need to be staged in a way that creates space, therefore staying away from large pieces of furniture and too many accessories. I always follow the style and architecture of the home and make it more current. Colors are also important in staging. I always go for the softer and neutral colors that are not offensive to the general public and throw in accents of color and texture that are warm yet contemporary. When staging a home, I have a buyer in mind, not the seller. The idea is to capture the buyer’s fantasy and them comfortable and happy to be there. The more the buyer engages in his/her surroundings by touching the wood, the textures, the more they will feel connected to the home.

Katalina: Who pays for the staging?

Yolanda: It’s really a negotiation between the home owner, the designer and the real estate agent.  The more expensive the home, the more a realtor is motivated to participate in the staging costs, but usually the home owner pays for the services.

Katalina: Is there a contract drawn between all the parties? Are the fees paid all at once?

Yolanda: Yes, I have a standard contract that I use and all parties have to sign. A portion of the fees are usually paid at the beginning of the job and then the remainder is paid monthly until the home sells. A lot depends on whether the designer has had to rent furniture and accessories.

Katalina: I would think that some home owners would not want to spend the money to stage. Do you have any statistics on how likely and fast a staged home sells versus one that is not staged as well as any figures on whether a staged home is likely to bring more money than a non staged home?

Yolanda:

Katalina:  Is there ever an instance when home staging is something a homeowner should not hold back on on?

Yolanda: Yes, here is something to think about. Let’s take the example of someone who is selling an older home in a neighborhood where there are new developments nearby. The older home is now in competition with the newer homes for possibly the same target buyers. The newer homes in the development have model homes that are staged exquisitely. This is an example of when staging your home like a model home becomes quite necessary. The designer will want to show the buyer that the older home can have the same comforts as the new home, with added benefits for ex: a larger lot. The goal is for the buyer to not walk away believing that they if they were to buy the older home, they would be giving up comfort.

Katalina: Can an experienced real estate agent stage the home, avoiding additional fees?

Yolanda: Definitely, a real estate agent can help clear the home of too many personal items and recommend neutral colors; however a real estate agent is not a designer, in the same way that I for example am not a real estate agent. Many times a realtor will notice that something is a distraction and not right, but they may not know how to remedy it.  A designer becomes a member of the sales team and adds value to the process. A good designer is familiar with the trends of interior home furnishings and interior/exterior space planning. For example pergolas and outdoor use of space is an important emerging trend, because the homes now tend to be smaller. I remember in one project I worked on, I removed the doors of a closet that was located near the kitchen and turned it into a small shallow office workspace with a desk and bookshelf because the home did not have room for a home office, which is now also an emerging trend with more people working from home. The trend of bonus rooms which were in vogue years ago has died off because of how expensive homes are in our area. A nice size bonus room means that one is paying a premium for dead space. Bonus rooms are now being staged or converted into in home offices.  In other words, an experienced home stager knows the market trends and makes sure to bring them into play when staging a home.

For more information on home staging you can reach Yolanda directly at…………………

I look forward to answering your next question at www.realestate-consult.com/ask-experts/

Regards,

Katalina Klein.

Another approach more commonly used for income or investment properties is the capitalization rate. A capitalization rate or (cap rate) is the ratio between the net operating income (NOI) produced by an asset and the cost to acquire it (capital cost). It is widely used by investors because it provides a snapshot of the asset’s current financial health based on its cash flow and offers an indirect measure of how quickly the investment will pay for itself.

With cap rates the value of an asset is mathematically linked to the income it generates. Therefore as the value of an asset goes up, the amount of income it produces must go up as well if the same cap rate is to be maintained. What does this all mean?

How are property value, cap rates and cash flow related?

In real estate investment, real property is often valued according to projected capitalization rates. The capitalization rate or (cap rate) is the ratio between the net operating income (NOI) produced by an asset and the cost to acquire it (capital cost). It is widely used by investors because it provides a snapshot of the asset’s current financial health based on its cash flow and offers an indirect measure of how quickly the investment will pay for itself. An investor of real estate is no different than any other investor. He/she views money as a capital asset which when invested is expected to make more money. Each investor has a rate of return they expect to realize in their investments. In this article I will be showing how a savvy investor is able to increase property value, cash flow and cap rate through efficient use of capital outlay and knowledge of tenancies.

An investor buys an apartment building for $1,000,000. Upon purchase the building occupancy was 80% and was producing a net income of $100,000/year. The cap rate upon purchase was 10%.

The investor’s main goal upon acquiring the property is to increase the income and the value of the building. As the value of an asset goes up, the amount of income it produces must go up as well if the same cap rate is to be maintained. The investor begins with an evaluation of the physical condition of the building and performs a tenant study. The investor is aware that some leases are due to expire the month after the purchase and that if he/she do not attract new tenants the occupancy rate could fall to 60%.The investor also determines that the building is in need of certain upgrades and renovation and that depending on the type and quality of the upgrade, the investor could attract higher paying tenants and also increase tenant retention. The investor is savvy and has understands the balance between renovations and perceived value from a tenant’s perspective. After performing a through tenant and market study the investor decides to spend $100,000 in renovations. The repairs and beautification pay off and the investor is able to fill 40% vacancy with tenants that are paying 35% more rent and have signed lease agreements for longer periods of time with healthy escalations. The building becomes attractive to the public and the investor has a waiting list. After a year the investor has 100% occupancy and has filled the building with a better tenant mix and the property is producing $140,000/year. What has happened to the cap rate and value?

Without addressing the cost of money (mortgage and renovation loan payment) the investor’s initial capital cost has increased from $1,000,000 to $1,100,000.  The cash flow however has increased to $140,000 and the building now has a cap rate of $12.7% (based on the initial purchase price and renovation).  In choosing which property to purchase, the investor chose the one with the highest projected rate of return. His/her understanding of the market place, knowledge of tenancies and efficacy of capital expenditures led this investor achieve the following:

1. The building has been improved and now attracts more tenants.
2. The tenant mix has been improved
3. Cash flow has been improved
4. The building’s cap rate has increased
5. The building’s value has increased.

The speed at which the property will pay for itself has also been accelerated

Shadow banking has been growing in importance over the past few years. It is a sometimes faster and more flexible way for borrowers to have access to capital. Shadow banking companies are non bank entities that are providing services similar to those traditionally provided by banks. However shadow institutions generally do not carry banking licenses and do not take depository funds and therefore not held to the same regulations as banks. They typically tend to act as intermediaries between investors and borrowers. For example, an institutional investor such as an insurance company may be looking to lend money and a builder may be searching for monies to borrow. A shadow banker will assist the builder in obtaining the desired investment funds from the insurance company and in turn will profit from the difference in the interest rates between what it pays the investor and receives from the borrower. Because of its greater flexibility, shadow banking plays an important role in providing credit across the commercial real estate markets