Wayne McCormick
Broker/Owner
Realty Executives of Northern Arizona
Fixing and flipping (Fix n Flips) real property is a bustling part of the real estate market! Investors, buyers, and many real estate licensees, regularly engage in these opportunities. The key to a successful flip is speed and economic prudence. Savvy investors identify projects, make cost-efficient improvements, and resell quickly. Yet, it can often be a race to the finish and a recipe for problems with inherent risk for those involved. Consider the following:
Lack of Knowledge About a Property. An investor most likely will not have lived in the property and thus, have little historical data. In turn, the invistor often refuses to provide a Seller's Property Disclosure Statement ("SPDS"). This is not a wise position, or in the best interest of the investor and others involved. To explain:
Practice Pointer. Licensees on both sides of the transaction should request copies of all contractor invoices. Further, licensees for the buyer should advise the buyer to review the licensing history of the contractors through the Arizona Registrar of Contractors ("ROC"). This advice should be given in writing and it should only be the buyer that conducts any research and due diligence with the ROC, not the licensee. This exercise allows the buyer to confirm that only licensed contractors performed work and said contractors are still in business and/or do not have a disciplinary history.
Licensee as a Principal. It has become common for some licensees to utilize their market expertise and participate in Fix n Flips as a principal. If choosing to do so, the following is important:
Ultimately, with Fix n Flips it is always best practice to be well versed in the heightened level of risk that a licensee and their respective clients encounter with fix transactions.
A Quick 401k Breakdown:
Your 401k is a retirement plan where your money can grow tax-free. However, to avoid any monetary penalties, you can’t withdraw your money until you’re 59 1/2. You get to choose what percentage of each paycheck you want to invest in your retirement. The money is withdrawn from your paycheck pre-tax. Therefore, you won’t owe any tax money until you start to withdraw at retirement age. Withdrawing before then can lead to an early withdrawal penalty plus additional income taxes. However, there are some exceptions.
Borrowing from Your 401K
When borrowing from your 401K you don’t have an early withdrawal fee and you don’t have to pay income taxes on the money you withdrew. Think of this strategy as a loan from yourself, to yourself. Just like a regular loan, you will need to pay yourself back, plus interest. Usually, you will need to pay back your account within about five years, but this time frame can vary.
The consequence though, is that your repayment deposits don’t count as contributions – so you don’t get a tax break. When borrowing you can usually take out half of your vested account balance or $50,000. It depends on which has less money.
Pro Tip: Just because you’re borrowing from yourself doesn’t mean you’re not taking on debt. In the eyes of a lender, you may no longer qualify for certain mortgages or rates.
Withdrawing from Your 401K
If your 401k provider doesn’t allow borrowing from your 401K or you need more than $50,000, you will have to withdraw from your account. You will incur the 10% withdrawal fee and have to pay income taxes on top of that. Unlike borrowing, you don’t have to pay this money back.
If you are under the age of 59 1/2, you are allowed one “hardship” withdrawal in certain circumstances such as buying your first home. With a hardship withdrawal, you are allowed to take out $10,000 and avoid the 10% penalty fee, but you still have to pay income taxes.
Being the longest running real estate brokerage in northern Arizona is carrying a torch of responsibility that Realty Executives of Flagstaff is proud to carry. This year, they are looking at two big milestones in their history: reaching 47 years of business along with the 30th anniversary celebration of their two veteran brokers, Wayne McCormick and Gary Nelson.
Forty-seven years does not seem like a long time to many, but in the real estate industry, it is quite a feat because in that same forty-seven years, many other real estate brokerages came and went. “With constantly shifting real estate markets, there are very few real estate offices that are built to last,” says McCormick, who owns Realty Executives of Flagstaff along with his wife, Debra. “Our commitment to the communities we serve is the difference.”
“I would add that being local is really what sets us apart from our competition,” says Delegated Broker Gary Nelson. “With many real estate brokerages from other parts of Arizona, the dedication to community just isn’t there.”
By their own estimation, Realty Executives of Flagstaff has dedicated hundreds of thousands of dollars over the years to local charities, non-profits, and youth activities. “We decided many years ago that our commitment to the people and nonprofits in our communities was the most important aspect of truly considering ourselves local," added McCormick. "The Realtors in our office have fully embraced that and do whatever they can to give back."
"We have such a great group of Realtors here," adds Nelson. “Each of them is a part of the community in their own way and has embraced the idea of ‘giving back.’ We have board members, committee volunteers, work horses, donors and Realtors that believe in a cause or event that is near and dear to their heart.”
Wayne McCormick and Gary Nelson are not only celebrating the forty-seven years that their brokerage has been running but also thirty years in the industry together. “We actually knew each other back in Boy Scouts here in Flagstaff, even though there were a few years between us,” says McCormick. “But we also started the same year in real estate and went through ‘orientation’ at the Northern Arizona Association of Realtors together. We are the last two left from 1994. And it was pretty much destiny that we would end up being partners like we are. Fifteen years ago, when I took over the brokerage that my father, Dave McCormick, founded, I needed someone to help me stay the course and commit to the community. Gary was that person, and we have never looked back.”
In September, Realty Executives of Flagstaff will throw a party – a big party! And it is not for themselves, but for the Realtors, other business people, and clients that have helped Wayne and Gary get to this landmark. “We have been in both competition and cooperation with thousands of Realtors in Flagstaff over the years,” says Debra McCormick. “They helped us get to where we are. Along with the lenders, escrow companies, contractors, and other professionals that worked with us to make this City a better place.”
“We throw a client appreciation party on the morning of the Fourth of July for about six hundred of our clients each year,” adds Debra. “Let’s see if we can get 600 of our fellow Realtors and industry professionals to help us celebrate in September! Even bigger, yet, will be our party in three years when we celebrate 50!”
Arizona Daily Sun, Shop Flagstaff (Local) Edition, June 29, 2024
If you survey 100 agents in Arizona asking them to rate on a scale of 1 to 5, how much they enjoy representing homes with solar, it would probably show almost all 1’s. For that reason, many agents avoid solar altogether while others may have had only occasional transactions. Why does there seem to be such a low opinion among agents for this renewable energy source for homeowners?
It boils down to the fact that many have had negative experiences and lost money, clients, and buyers due to not understanding solar and its complexities.
The truth however, is that solar panels are an amazing technology that has the capability of producing electricity for at least 50 years. With a little bit of understanding of the basics of solar, homes with solar don’t have to be such daunting transactions.
The 3 Methods of Solar Ownership
There are three methods a homeowner can choose with their solar: it can be owned outright, owned with a loan, or leased. For a real estate agent, each one of these presents its own unique challenges. Some of those challenges unfortunately, due to misrepresentation on the part of the agent, have ended up in court.
Ownership Method #1 – Owned Solar
Challenge #1:
Listing the home openly and properly as a solar home so you don’t lose your client.
Solution #1:
Market the home as a solar home and showcase the solar as an added value feature in order to help sellers recoup at least some of their investment into solar.
Ownership Method #2 – Solar With a Loan
Challenge #2:
Solar loans require a negotiation in escrow to determine if the loan will be paid off or assumed by the buyer.
Solution #2:
When marketing a home, demonstrate the value with the proper solar value documentation. A solar loan is always part of the negotiation of the purchase price. A fundamental understanding of the value of the solar system empowers a better negotiation so that both the buyer and seller walk away happy. The two outcomes are to either pay off the solar loan or transfer it to the buyer.
Ownership Method #3 – Leased Solar
Challenge #3:
Getting a buyer on board with assuming a 20-year contract. There is typically an increase built into it each year.
Solution #3:
This challenge has two solutions. The first option is to help the home buyer understand how much the solar is going to save them each month on electricity and get the lease contract transferred into their name. The second, and better option is to help the buyer buy out the solar system from the lease company, as part of the home purchase. This will add value later whenever they decide to sell.
To understand those three challenges and create buyer confidence in the solar on a home, it’s important to know that any given system will have between 1 and 6 contracts connecting the solar system to the home and its owner. These also need to be navigated in the real estate transaction.
Solar contracts that agents need to navigate:
You can both minimize your liability and help the buyer of a solar home feel confident by learning about and understanding these contracts. To better serve your clients with solar homes, be sure to explore these contracts and the best practices associated with them.