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Open House
Interviews with Anthony Carr, Colby Sambrotto
Aired March 05, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BETTY NGUYEN, CNN ANCHOR: "OPEN HOUSE" is straight ahead, but first, these stories now in the news.
CNN has obtained new pictures of a man believed to be terrorist leader Abu Musab al-Zarqawi. Sources tell CNN that the man in the photographs is in fact al-Zarqawi, a top lieutenant of Osama bin Laden. He is suspected of orchestrating numerous terrorist attacks in Iraq. It is not clear, though, how recently the photos were taken.
And Italian journalists arrived back in Rome this morning one month after she was taken hostage in Iraq. But in a tragic twist, Giuliana Sgrena and two others were wounded in Baghdad by U.S. troops after she had been freed. An Italian security agent who helped secure her release was killed.
I'm Betty Nguyen. OPEN HOUSE starts right now.
ANNOUNCER: Coming up on OPEN HOUSE, buying a second home can be a great investment. We have tips on finding the cash to do it.
Then, selling your home on your own is a lot of work. We show you how to do it right.
Plus, the domestic diva is out of prison. We take a look at Martha Stewart's savvy real estate investments.
And our weekend project, a closet makeover. Get organized, next on OPEN HOUSE.
GERRI WILLIS, HOST: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
From buying and selling, to renovation and design, we show you how the get the most value out of your biggest investment, your home.
And a new study out this week shows many of us are investing in a second home. In fact, the National Association of Realtors found 23 percent of all homes purchased last year were for investment only.
Sometimes investors will buy and sell a property before it's even built. Others purchase a property to rent with the goal of selling it for a profit in the future.
That's the case with one New Jersey couple. Allan Chernoff has the story. (BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Robert Burger and his wife, Beth Brody, have just bought a second home in Sargentsville (ph), New Jersey. But they'll never vacation here. Only five minutes from their primary home, this is an investment.
BETH BRODY, HOMEOWNER: I wanted something that made sense financially, that was close by, that we could take care of the house. Real estate historically has always been a good investment.
CHERNOFF: In addition to the house, there's an apartment over the garage, two rental opportunities.
ROBERT BURGER, HOMEOWNER: Well, renting it out, you know, that's income. It's income. You know, essentially the rent is paying the mortgage.
CHERNOFF (on camera): Three years ago, Rob and Beth paid off their mortgage. The next year, they made their final car payment. At that point, they were debt free, and they decided to go for another home.
(voice-over): The second home cost $360,000. Rob and Beth put down only about $5,000 and borrowed the rest through a home equity loan on their primary residence, which they figured was cheaper than taking out a new mortgage.
Here's their monthly balance sheet. Expenses on their investment, including loan payments, run $2,980 a month. They have already rented the apartment for $950 and plan to rent the home for $1,990, which would cover the bulk of their monthly expenses.
There are two challenges, though, finding a second tenant, and taking care of the house.
ROBERT BURGER: I'm sure there's going to be some time and effort involved. As to whether it will get to be too much, you know, I don't know.
BETH BRODY: Well, we bought it...
ROBERT BURGER: There might be some days I'll say, Ah, let's sell this place. I can't take it anymore.
CHERNOFF: Still, Robert and Beth say they are more comfortable investing in another home than in the stock market, where they took a hit.
ROBERT BURGER: Our investments, we're, like, almost back to where we started, you know. So it hasn't quite turned that corner yet, OK, after the big crash we had.
CHERNOFF: So they are counting on real estate, hoping their second home will appreciate enough to pay for Zack's (ph) college education 15 years from now.
Allan Chernoff, CNN, Sargentsville, New Jersey.
(END VIDEOTAPE)
WILLIS: As for getting into an investment property, you don't necessarily need a pile of cash.
Joining us now from Washington with a look at financing is Anthony Carr, author of "Real Estate Investing Made Simple."
Welcome, Anthony.
ANTHONY CARR, AUTHOR, "REAL ESTATE INVESTING MADE SIMPLE": Hi, Gerri. Thanks for having me.
WILLIS: So good to have you here.
You know, I got to ask you, though, people who are interested in getting into investing, some of us are having trouble making the mortgage to begin with. Where do you find the cash to get started?
CARR: Well, you know, it's not unlike finding the cash that you did for the home that you bought to live in. The first step is to talk with your mortgage broker who got you into the property that you're in now. There is a lot of programs out there for investment properties. And the first step is, just find out where they are, what they are, what they require.
CHERNOFF: All right. Well, once I do find some money, maybe some savings or something, how do I get financed? Because I hear that can be really tough.
CARR: Well, what you're looking at is, they're going to take into account not only what you -- how your finances are right now, your debt to income ratio, but they also will look at the property that you're purchasing and seeing how much income is that going to produce. And that goes into the bottom line of the sheet they are putting together to determine whether they will give the loan on the property or not.
So it's -- you...
WILLIS: (UNINTELLIGIBLE), Anthony, a lot of bankers out there will say, Hey, you know, this isn't your primary home. I'm going to charge you more in interest. I'm going to make you put down a higher down payment. Is there any way to avoid that?
CARR: There is. If that's what you're hearing from one financier, move along. There are programs now for investors that will take as low as a 5 percent down payment, 10 percent down payment. I just discovered some financing with 100 percent down payment. But there are qualifications for that. With 100 percent financing on an investment property, for instance, you are going to have to have six months of PITI reserves. You're (UNINTELLIGIBLE) probably going to...
WILLIS: Explain PITI to our viewers. They may not know what you mean.
CARR: Sure. PITI is, in essence, the payment you are going to make, the principal, interest, taxes, and insurance for that mortgage. So you get 100 percent financing, say it's $200,000, whatever the payment would be on that amount, they want to see six months of that payment in the bank.
You're also going to have to pay a higher interest rate on that, more than likely, and the terms will be a little bit more stringent than you would if you had a higher down payment.
WILLIS: All right. Well, if I've got all that money sitting around, how quickly do I actually make a profit on the property?
CARR: Well, you kind of have to define profit. If you're putting a huge down payment down, you're going to have a lower monthly payment, and the rent should be able to take care of that. The story you had earlier, they're taking a monthly cash negative on their property. So they're going to realize their profit a little bit later.
WILLIS: You know, I've heard you say that you want to look for a property maybe where you do cover that mortgage with rent. Is that likely? How often can find a property where I can actually do that?
CARR: You know, in a hot market, it may not be as likely. So you may have to look in places outside of where you live now. A lot of people, they are sitting on a lot of equity. Get in contact with the real estate professionals in a different area to find property that is priced at a lower rate.
NGUYEN: I might want to look in an area where maybe the market's a little sluggish?
CARR: Sluggish, possibly into a buyer's market, or just moving up slower. For instance, I'm looking at property in North Carolina. I live in Virginia. But I have people in North Carolina that I know and trust. But the property there is at a very good rate right now, with the interest rates. I can definitely get someone in there that will cover my monthly payment on my mortgage with the rent that they're paying me.
WILLIS: Anthony, what about getting a buddy to invest alongside you, or maybe even joining one of these investment clubs?
CARR: Exactly. I really like the idea of getting a buddy, someone that can come alongside of you and help absorb the responsibility of taking care of the property. Also, help someone that can help you qualify for the mortgage that you might be wanting to take on that property.
And if you're -- if you've never done this before, find a buddy that's done it before, if you can look for someone like that in the investment club that we've talked about in the past. But definitely, you can do that, and that helps you to share the expenses and the responsibilities of taking care of that property while you have it as an investment.
WILLIS: Always good to share the responsibility with somebody you trust.
CARR: Most definitely.
WILLIS: Anthony Carr, thanks so much for being with us today.
CARR: Thank you.
WILLIS: Next on OPEN HOUSE, think you can tackle selling your home on your own? Well, we'll show you how it's done.
Then, Martha Stewart's settling into house arrest in style. We take a look at her multimillion-dollar estate and her impressive real estate portfolio.
And weekend projects, it's a closet makeover. Cut out the clutter. Get organized, coming up.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
ANNOUNCER: Shopping for a house online? Here's what you need to know before you begin.
First, determine your price range, and get all financial documents ready and organized. Next, create a reasonable wish list by figuring out what amenities your new home must have, and which you would like to have.
Never buy a house you've seen online without seeing it in person.
And be sure to check out both local and national realty Web sites.
And that's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: If you've ever sold a house, you know that real estate agents can charge a commission between 5 and 6 percent. That can add up to thousands of dollars, prompting many homeowners to consider selling their homes on their own, like a family we found in Connecticut.
(BEGIN VIDEOTAPE)
WILLIS (voice-over): Steve Ulbrich recently sold his Stanford, Connecticut, home without the help of a real estate agent.
STEVE ULBRICH, HOMEOWNER: Obviously, if you use a broker, you got to pay about 5 percent commission. WILLIS: That saved him $30,000, and it saved him time. He got a quick offer, no fee let him keep the price down.
ULBRICH: We didn't want to do a fast sale (UNINTELLIGIBLE) being able to price it lower by not using a broker that we'd be able to do that.
WILLIS: But it also meant a lot of legwork.
ULBRICH: We've got three kids. So we have to deal with that. There's the logistical problem of getting them out of the house, or got to get up first thing in the morning and throw everything together and, you know, put out signs on the roadsides and buy balloons. And, you know, just, again, keep the house in tiptop shape.
WILLIS: Real estate agent Doug Magid says you miss out on a lot when you go it alone.
DOUG MAGID, CENTURY 21 WILLIAM B. MAY: The question is the value of your time. If you're willing to be at home, if you're willing to conduct open houses, if you're willing to field phone calls, if you're willing to prepare all the marketing flyers, if you're willing to put in all the "New York Times" ads or any advertisement in any major publication, if you're willing to monitor that whole process and deal with everyone who comes your way, then it's a perfect opportunity for you.
If you don't want to be involved in all those aspects, if you are not interested in being tied to the home in order to make the sale of the home, then it's probably a good time to call a real estate professional.
WILLIS: But Steve Ulbrich says he would do it again, next time armed with lessons learned.
ULBRICH: One of the things I would do differently is probably host a broker open house, like a broker does, just to get the brokers in here and showcase it to them on their own, and maybe get them out to, you know, show it to more of their clients.
(END VIDEOTAPE)
WILLIS: Still thinking about selling on your own? Well, we'll tell you what steps you need to take.
Here to help, Colby Sambrotto, chief operating officer for ForSalebyOwner.com.
Welcome, Colby. Good to see you.
COLBY SAMBROTTO, FORSALEBYOWNER.COM: Thanks for having me.
WILLIS: All right. The package we just saw made it look like a real trial to sell your house...
SAMBROTTO: (UNINTELLIGIBLE)... WILLIS: ... on your own.
SAMBROTTO: Right.
WILLIS: So why would do you it?
SAMBROTTO: Well, there's enormous amount of money you can save. I mean, when you consider that the average real estate commission in this country, still, nationally, is about 6 percent, maybe between 5 and 6 percent, and the average home sells for, let's say, about $200,000, you're going to spend nearly $12,000 on Realtor commissions when that home closes.
So that's a considerable amount of money to save. And unless you're, you know, Johnnie Cochran, who bills out at a thousand dollars an hour, that's going to be time well spent. I mean, you're going to save a considerable amount of money.
WILLIS: All right. So I want the extra money in my pocket.
SAMBROTTO: Right, that's right.
WILLIS: If I'm really concerned about that...
SAMBROTTO: Right.
WILLIS: ... definitely sell on your own.
SAMBROTTO: Right.
WILLIS: You say, though, if you are going to sign onto this, you absolutely have to put the right price on your house.
SAMBROTTO: That's right.
WILLIS: Now, let's talk about how you do it, because it's a little complicated. Do I start with research? Where do I begin?
SAMBROTTO: You start with research. And luckily, nowadays, most of that research can be done online. And it's free. So you can peruse, let's say, Realtor.com. You can peruse a site like ours. And you can look at homes in a similar area to yours, similarly, you know, similar square footage, and see what their priced at.
WILLIS: So look at the competition...
SAMBROTTO: Right.
WILLIS: ... what are they priced at...
SAMBROTTO: Right.
WILLIS: ... what you do at Realtor.com, right?
SAMBROTTO: Right, (UNINTELLIGIBLE)-dot-com.
WILLIS: You also say, though, get an online appraisal. Where do I do that?
SAMBROTTO: Any -- most of the online real estate sites nowadays have online appraisals. And they cost between usually $20 and $30. You fill out a questionnaire, and it spits out a price that is judged against databases that are publicly accessible. So it'll look at home prices over the course of the last 10 years, size of your house, the age of your house. And it'll come back with a price that it thinks it is relatively accurate.
And they're pretty good.
WILLIS: Now, you also say, speak with agents. But that sounds impossible, because I'm not going to pay one. So won't they be mad?
SAMBROTTO: Well, right, they'll be very angry. And I don't, I wouldn't say, you know, necessarily, you know, go into it thinking that you're going to trick an agent or you're going to waste their time. But you certainly can call up an agent and talk to them about where they -- what they think your home is worth. And certainly you can look at Realtor.com, which is the online presence of the National Association of Realtors. So that's helpful.
WILLIS: All right. Well, let's talk about marketing, because that is very tricky if you're selling on your own.
SAMBROTTO: Right, right.
WILLIS: Big job. How do I go about dealing with it?
SAMBROTTO: That's the hardest part for someone who's not using a Realtor. Nowadays, though, there are a number of cost-effective and affordable means of doing that. Again, most are going to be on the Internet. And the Internet, really, is a great way for showcasing real estate, it turns out. You can do color photos, you can do, you know, 3,000-word description. And it's all easily searched by buyers.
WILLIS: But Colby, do I have to be a brain (UNINTELLIGIBLE) surgeon about technology to pull that off?
SAMBROTTO: You shouldn't. I mean, most sites, if it's, if they're worth their, you know, worth their salt are going to be very user-friendly. And you can go in, and usually within the space of about half an hour, get your ad up and running on a reputable Web site.
WILLIS: How do I know, though, that I've picked a Web site where there are lots of people going?
SAMBROTTO: That's a tough thing to do.
WILLIS: Because, you know, some of them are just fly-by-nights (UNINTELLIGIBLE).
SAMBROTTO: Sure. It's easy to put up a Web site and charge someone for a listing and then never do anything. The way to do that is to go to a company called Alexa.com. That's A-L-E-X-A-dot-com. And I think they're owned by Amazon. But they actually rank Web sites based on traffic. And it's important, if you're using a Web site to market your property, to make sure that there's actually traffic going to that Web site.
WILLIS: Any other way to market? I mean, real-world, bricks- and-mortar ways of marketing?
SAMBROTTO: Sure. We suggest to our customers that they use our ads, for instance, in conjunction with a local classified ad in their newspaper. You know, those little ads, they're, everything's abbreviated. Doesn't necessarily convey the strengths of a property. But used in conjunction with the Web, can really showcase the property.
And, of course, yard signs.
WILLIS: All right. So you say I've got to find a qualified buyer. What does that mean?
SAMBROTTO: That means someone who's actually in a position financially to purchase your home. Before you invest the time and effort in showing your home to anyone who comes across your ad on the Internet or in your local newspaper, you want to make sure that they're actually able to purchase that home, and that can be done through a variety of methods. Most of them are online. In fact, our customers get a free qualifications tool.
WILLIS: Now, you know, if I'm not hiring a Realtor, it seems to me that the other professionals in the mix will be all that more important. Do I spend a lot of time getting the right attorney, for example?
SAMBROTTO: It's important. It's an important process. It's important part of the process. Generally speaking, east of the Mississippi, and this is just a rule of thumb, people use real estate attorneys for the closing. West of the Mississippi, they use title companies. But you should invest some time researching the quality of the person you're hiring, sure.
WILLIS: Makes sense. Colby, thank you so much for being with us.
SAMBROTTO: Thanks for having me.
WILLIS: Coming up on OPEN HOUSE, our weekend project, a closet makeover. Quit digging for your clothes and make the most of a small space.
And later, you may know her as the domestic diva, but Martha Stewart is also a real estate guru. We take a look at her savvy investment skills.
That's all coming up next.
(COMMERCIAL BREAK)
(BEGIN VIDEOTAPE)
WILLIS: Welcome back to OPEN HOUSE and weekend project, where we're making the most of a small closet.
We're at the home of Katey (ph) and Dan Volts (ph) in Maplewood, New Jersey.
Katey and Dan, so good to see you.
UNIDENTIFIED FEMALE: Good to see you too. Thanks.
WILLIS: So what do you guys hope to accomplish with this?
UNIDENTIFIED FEMALE: Well, our closets, our house is about 80 years old, and the closets are not really accommodating for a growing family, which is what we have. And so we're really hoping to just make the most of our space.
WILLIS: This is a problem a lot of people have, lots of closets, but they're all tiny, right, Dan?
UNIDENTIFIED MALE: That's exactly right. We're both working professionals, so there's a lot of different clothes that we need to store, a lot of suits, a lot of pants, a lot of shirts, a lot of handbags, and a lot of shoes.
UNIDENTIFIED FEMALE: (UNINTELLIGIBLE).
WILLIS: Well, let's get started.
(voice-over): First step, clean out the closet.
UNIDENTIFIED MALE: She's really got a lot of pants.
WILLIS: Next, take the measurements. For Katey and Dan, a quick way to create more hanging space was to add Closet Maid Super Slide. Hangers slide freely, allowing more room for clothing. Use the templates on the packaging to position, mark, and drill for the wall brackets you need. Then cut the hanger bar to the length of your closet.
(on camera): So tell me, is this something I can do myself?
UNIDENTIFIED MALE: Absolutely. This is a product that's made for the consumer to do them by themselves.
WILLIS (voice-over): Now, you're ready for installation.
UNIDENTIFIED MALE: We're installing the hanging track, which is the support for the closet system.
And now we're attaching standards. These are 84-inch standards. They go no more than 24 inches apart.
WILLIS (on camera): What are they hooking onto there?
UNIDENTIFIED MALE: The hang tractor (UNINTELLIGIBLE).
(UNINTELLIGIBLE) spaces.
The 84-inch ones allow you more versatility. (UNINTELLIGIBLE) top to bottom in terms of rearranging shelving, getting the maximum amount of shelving.
UNIDENTIFIED MALE: And then we're ready for brackets.
And then what we're going to do in here is, double hang, which is going to be clothes over clothes, or pants, shirts over pants.
WILLIS: So you mean there are going to be two levels.
UNIDENTIFIED MALE: Two levels (UNINTELLIGIBLE).
We are ready for the shelving.
WILLIS (voice-over): And the cost?
UNIDENTIFIED MALE: For a closet typical of this size, you're probably looking at anywhere between $75 and $100.
WILLIS: Well, that's not very much money.
UNIDENTIFIED MALE: No.
WILLIS: And can I do it in a weekend?
UNIDENTIFIED MALE: You can do it in a couple hours.
WILLIS: Do it in a couple hours.
(voice-over): For Katey and Dan, their old closet clutter is no longer a concern.
(on camera): OK, Katey and Dan, let's see the finished product.
UNIDENTIFIED FEMALE: OK.
Oh, my gosh, that looks great.
WILLIS: Do you like it?
UNIDENTIFIED FEMALE: (UNINTELLIGIBLE) fantastic.
UNIDENTIFIED MALE: It looks terrific. They did a great job.
WILLIS: It's a lot more organized.
UNIDENTIFIED FEMALE: It's much more organized.
UNIDENTIFIED MALE: No doubt.
UNIDENTIFIED FEMALE: It looks great. And then much more efficient use of our space. (END VIDEOTAPE)
WILLIS: What a cute couple.
For a quick way to clean up your kids' closets, try a basket for their shoes. They're more likely to toss their shoes in a basket than line them up neatly on the floor.
Up next on OPEN HOUSE, who knew house arrest could look like this? We take a look at Martha Stewart's Bedford estate and her other multimillion-dollar property.
But first, our mortgage snapshot.
(COMMERCIAL BREAK)
WILLIS: Martha Stewart is out of prison and beginning five months of house arrest.
She popularized the idea that your home is your castle. And with real estate like hers, well, house arrest may not be so bad.
(BEGIN VIDEOTAPE)
WILLIS (voice-over): Martha Stewart left prison early Friday, $500 million wealthier than she entered it, a billionaire again, at least on paper.
And it's not just her company stock that's soaring. She's a savvy real estate investor, holding more than $40 million worth of property.
House arrest is here, this home, sitting on 153 acres of beautiful rolling farmland in Bedford, New York. She paid $15 million for it. Now it's worth about $25 million.
She has Turkey Hill in Westport, Connecticut, site of her popular TV show, bought 25 years ago for less than $500,000. Today, it's worth $5 million.
PAUL PURCELL, BRADDOCK AND PURCELL REAL ESTATE: She gets not only what happens inside the house right, but she gets the house right. She gets the location right. Now, clearly, Martha's starting with a lot of money to begin with. But she's made some very astute choices. She's bought in absolutely superior locations, she's bought beautiful properties that could be renovated, could be enhanced even further than they were.
WILLIS: Over the years, the domestic diva has owned two estates in East Hampton, the exclusive summer playground for Manhattan's elite. She still holds her $15 million estate on Lily Pond Lane but sold another. Who needs it when you have an ankle bracelet keeping you on the farm?
(END VIDEOTAPE) WILLIS: Stewart will definitely eat in style while under house arrest. She's hired the former chef from New York's famed Le Cirque Restaurant.
Next week on OPEN HOUSE, moving scams are more prevalent than you think. We show you how to protect your belongings.
And our weekend project, fabulous bathrooms. We'll show you how to install a new toilet and sink.
Plus, we want to hear from you. Send us your comments, your questions, to openhouse@cnn.com.
Thanks for watching OPEN HOUSE.
Coming up, "DOLANS UNSCRIPTED."
But first, a look at the day's headlines.
Have a great weekend.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired March 5, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BETTY NGUYEN, CNN ANCHOR: "OPEN HOUSE" is straight ahead, but first, these stories now in the news.
CNN has obtained new pictures of a man believed to be terrorist leader Abu Musab al-Zarqawi. Sources tell CNN that the man in the photographs is in fact al-Zarqawi, a top lieutenant of Osama bin Laden. He is suspected of orchestrating numerous terrorist attacks in Iraq. It is not clear, though, how recently the photos were taken.
And Italian journalists arrived back in Rome this morning one month after she was taken hostage in Iraq. But in a tragic twist, Giuliana Sgrena and two others were wounded in Baghdad by U.S. troops after she had been freed. An Italian security agent who helped secure her release was killed.
I'm Betty Nguyen. OPEN HOUSE starts right now.
ANNOUNCER: Coming up on OPEN HOUSE, buying a second home can be a great investment. We have tips on finding the cash to do it.
Then, selling your home on your own is a lot of work. We show you how to do it right.
Plus, the domestic diva is out of prison. We take a look at Martha Stewart's savvy real estate investments.
And our weekend project, a closet makeover. Get organized, next on OPEN HOUSE.
GERRI WILLIS, HOST: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
From buying and selling, to renovation and design, we show you how the get the most value out of your biggest investment, your home.
And a new study out this week shows many of us are investing in a second home. In fact, the National Association of Realtors found 23 percent of all homes purchased last year were for investment only.
Sometimes investors will buy and sell a property before it's even built. Others purchase a property to rent with the goal of selling it for a profit in the future.
That's the case with one New Jersey couple. Allan Chernoff has the story. (BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Robert Burger and his wife, Beth Brody, have just bought a second home in Sargentsville (ph), New Jersey. But they'll never vacation here. Only five minutes from their primary home, this is an investment.
BETH BRODY, HOMEOWNER: I wanted something that made sense financially, that was close by, that we could take care of the house. Real estate historically has always been a good investment.
CHERNOFF: In addition to the house, there's an apartment over the garage, two rental opportunities.
ROBERT BURGER, HOMEOWNER: Well, renting it out, you know, that's income. It's income. You know, essentially the rent is paying the mortgage.
CHERNOFF (on camera): Three years ago, Rob and Beth paid off their mortgage. The next year, they made their final car payment. At that point, they were debt free, and they decided to go for another home.
(voice-over): The second home cost $360,000. Rob and Beth put down only about $5,000 and borrowed the rest through a home equity loan on their primary residence, which they figured was cheaper than taking out a new mortgage.
Here's their monthly balance sheet. Expenses on their investment, including loan payments, run $2,980 a month. They have already rented the apartment for $950 and plan to rent the home for $1,990, which would cover the bulk of their monthly expenses.
There are two challenges, though, finding a second tenant, and taking care of the house.
ROBERT BURGER: I'm sure there's going to be some time and effort involved. As to whether it will get to be too much, you know, I don't know.
BETH BRODY: Well, we bought it...
ROBERT BURGER: There might be some days I'll say, Ah, let's sell this place. I can't take it anymore.
CHERNOFF: Still, Robert and Beth say they are more comfortable investing in another home than in the stock market, where they took a hit.
ROBERT BURGER: Our investments, we're, like, almost back to where we started, you know. So it hasn't quite turned that corner yet, OK, after the big crash we had.
CHERNOFF: So they are counting on real estate, hoping their second home will appreciate enough to pay for Zack's (ph) college education 15 years from now.
Allan Chernoff, CNN, Sargentsville, New Jersey.
(END VIDEOTAPE)
WILLIS: As for getting into an investment property, you don't necessarily need a pile of cash.
Joining us now from Washington with a look at financing is Anthony Carr, author of "Real Estate Investing Made Simple."
Welcome, Anthony.
ANTHONY CARR, AUTHOR, "REAL ESTATE INVESTING MADE SIMPLE": Hi, Gerri. Thanks for having me.
WILLIS: So good to have you here.
You know, I got to ask you, though, people who are interested in getting into investing, some of us are having trouble making the mortgage to begin with. Where do you find the cash to get started?
CARR: Well, you know, it's not unlike finding the cash that you did for the home that you bought to live in. The first step is to talk with your mortgage broker who got you into the property that you're in now. There is a lot of programs out there for investment properties. And the first step is, just find out where they are, what they are, what they require.
CHERNOFF: All right. Well, once I do find some money, maybe some savings or something, how do I get financed? Because I hear that can be really tough.
CARR: Well, what you're looking at is, they're going to take into account not only what you -- how your finances are right now, your debt to income ratio, but they also will look at the property that you're purchasing and seeing how much income is that going to produce. And that goes into the bottom line of the sheet they are putting together to determine whether they will give the loan on the property or not.
So it's -- you...
WILLIS: (UNINTELLIGIBLE), Anthony, a lot of bankers out there will say, Hey, you know, this isn't your primary home. I'm going to charge you more in interest. I'm going to make you put down a higher down payment. Is there any way to avoid that?
CARR: There is. If that's what you're hearing from one financier, move along. There are programs now for investors that will take as low as a 5 percent down payment, 10 percent down payment. I just discovered some financing with 100 percent down payment. But there are qualifications for that. With 100 percent financing on an investment property, for instance, you are going to have to have six months of PITI reserves. You're (UNINTELLIGIBLE) probably going to...
WILLIS: Explain PITI to our viewers. They may not know what you mean.
CARR: Sure. PITI is, in essence, the payment you are going to make, the principal, interest, taxes, and insurance for that mortgage. So you get 100 percent financing, say it's $200,000, whatever the payment would be on that amount, they want to see six months of that payment in the bank.
You're also going to have to pay a higher interest rate on that, more than likely, and the terms will be a little bit more stringent than you would if you had a higher down payment.
WILLIS: All right. Well, if I've got all that money sitting around, how quickly do I actually make a profit on the property?
CARR: Well, you kind of have to define profit. If you're putting a huge down payment down, you're going to have a lower monthly payment, and the rent should be able to take care of that. The story you had earlier, they're taking a monthly cash negative on their property. So they're going to realize their profit a little bit later.
WILLIS: You know, I've heard you say that you want to look for a property maybe where you do cover that mortgage with rent. Is that likely? How often can find a property where I can actually do that?
CARR: You know, in a hot market, it may not be as likely. So you may have to look in places outside of where you live now. A lot of people, they are sitting on a lot of equity. Get in contact with the real estate professionals in a different area to find property that is priced at a lower rate.
NGUYEN: I might want to look in an area where maybe the market's a little sluggish?
CARR: Sluggish, possibly into a buyer's market, or just moving up slower. For instance, I'm looking at property in North Carolina. I live in Virginia. But I have people in North Carolina that I know and trust. But the property there is at a very good rate right now, with the interest rates. I can definitely get someone in there that will cover my monthly payment on my mortgage with the rent that they're paying me.
WILLIS: Anthony, what about getting a buddy to invest alongside you, or maybe even joining one of these investment clubs?
CARR: Exactly. I really like the idea of getting a buddy, someone that can come alongside of you and help absorb the responsibility of taking care of the property. Also, help someone that can help you qualify for the mortgage that you might be wanting to take on that property.
And if you're -- if you've never done this before, find a buddy that's done it before, if you can look for someone like that in the investment club that we've talked about in the past. But definitely, you can do that, and that helps you to share the expenses and the responsibilities of taking care of that property while you have it as an investment.
WILLIS: Always good to share the responsibility with somebody you trust.
CARR: Most definitely.
WILLIS: Anthony Carr, thanks so much for being with us today.
CARR: Thank you.
WILLIS: Next on OPEN HOUSE, think you can tackle selling your home on your own? Well, we'll show you how it's done.
Then, Martha Stewart's settling into house arrest in style. We take a look at her multimillion-dollar estate and her impressive real estate portfolio.
And weekend projects, it's a closet makeover. Cut out the clutter. Get organized, coming up.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
ANNOUNCER: Shopping for a house online? Here's what you need to know before you begin.
First, determine your price range, and get all financial documents ready and organized. Next, create a reasonable wish list by figuring out what amenities your new home must have, and which you would like to have.
Never buy a house you've seen online without seeing it in person.
And be sure to check out both local and national realty Web sites.
And that's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: If you've ever sold a house, you know that real estate agents can charge a commission between 5 and 6 percent. That can add up to thousands of dollars, prompting many homeowners to consider selling their homes on their own, like a family we found in Connecticut.
(BEGIN VIDEOTAPE)
WILLIS (voice-over): Steve Ulbrich recently sold his Stanford, Connecticut, home without the help of a real estate agent.
STEVE ULBRICH, HOMEOWNER: Obviously, if you use a broker, you got to pay about 5 percent commission. WILLIS: That saved him $30,000, and it saved him time. He got a quick offer, no fee let him keep the price down.
ULBRICH: We didn't want to do a fast sale (UNINTELLIGIBLE) being able to price it lower by not using a broker that we'd be able to do that.
WILLIS: But it also meant a lot of legwork.
ULBRICH: We've got three kids. So we have to deal with that. There's the logistical problem of getting them out of the house, or got to get up first thing in the morning and throw everything together and, you know, put out signs on the roadsides and buy balloons. And, you know, just, again, keep the house in tiptop shape.
WILLIS: Real estate agent Doug Magid says you miss out on a lot when you go it alone.
DOUG MAGID, CENTURY 21 WILLIAM B. MAY: The question is the value of your time. If you're willing to be at home, if you're willing to conduct open houses, if you're willing to field phone calls, if you're willing to prepare all the marketing flyers, if you're willing to put in all the "New York Times" ads or any advertisement in any major publication, if you're willing to monitor that whole process and deal with everyone who comes your way, then it's a perfect opportunity for you.
If you don't want to be involved in all those aspects, if you are not interested in being tied to the home in order to make the sale of the home, then it's probably a good time to call a real estate professional.
WILLIS: But Steve Ulbrich says he would do it again, next time armed with lessons learned.
ULBRICH: One of the things I would do differently is probably host a broker open house, like a broker does, just to get the brokers in here and showcase it to them on their own, and maybe get them out to, you know, show it to more of their clients.
(END VIDEOTAPE)
WILLIS: Still thinking about selling on your own? Well, we'll tell you what steps you need to take.
Here to help, Colby Sambrotto, chief operating officer for ForSalebyOwner.com.
Welcome, Colby. Good to see you.
COLBY SAMBROTTO, FORSALEBYOWNER.COM: Thanks for having me.
WILLIS: All right. The package we just saw made it look like a real trial to sell your house...
SAMBROTTO: (UNINTELLIGIBLE)... WILLIS: ... on your own.
SAMBROTTO: Right.
WILLIS: So why would do you it?
SAMBROTTO: Well, there's enormous amount of money you can save. I mean, when you consider that the average real estate commission in this country, still, nationally, is about 6 percent, maybe between 5 and 6 percent, and the average home sells for, let's say, about $200,000, you're going to spend nearly $12,000 on Realtor commissions when that home closes.
So that's a considerable amount of money to save. And unless you're, you know, Johnnie Cochran, who bills out at a thousand dollars an hour, that's going to be time well spent. I mean, you're going to save a considerable amount of money.
WILLIS: All right. So I want the extra money in my pocket.
SAMBROTTO: Right, that's right.
WILLIS: If I'm really concerned about that...
SAMBROTTO: Right.
WILLIS: ... definitely sell on your own.
SAMBROTTO: Right.
WILLIS: You say, though, if you are going to sign onto this, you absolutely have to put the right price on your house.
SAMBROTTO: That's right.
WILLIS: Now, let's talk about how you do it, because it's a little complicated. Do I start with research? Where do I begin?
SAMBROTTO: You start with research. And luckily, nowadays, most of that research can be done online. And it's free. So you can peruse, let's say, Realtor.com. You can peruse a site like ours. And you can look at homes in a similar area to yours, similarly, you know, similar square footage, and see what their priced at.
WILLIS: So look at the competition...
SAMBROTTO: Right.
WILLIS: ... what are they priced at...
SAMBROTTO: Right.
WILLIS: ... what you do at Realtor.com, right?
SAMBROTTO: Right, (UNINTELLIGIBLE)-dot-com.
WILLIS: You also say, though, get an online appraisal. Where do I do that?
SAMBROTTO: Any -- most of the online real estate sites nowadays have online appraisals. And they cost between usually $20 and $30. You fill out a questionnaire, and it spits out a price that is judged against databases that are publicly accessible. So it'll look at home prices over the course of the last 10 years, size of your house, the age of your house. And it'll come back with a price that it thinks it is relatively accurate.
And they're pretty good.
WILLIS: Now, you also say, speak with agents. But that sounds impossible, because I'm not going to pay one. So won't they be mad?
SAMBROTTO: Well, right, they'll be very angry. And I don't, I wouldn't say, you know, necessarily, you know, go into it thinking that you're going to trick an agent or you're going to waste their time. But you certainly can call up an agent and talk to them about where they -- what they think your home is worth. And certainly you can look at Realtor.com, which is the online presence of the National Association of Realtors. So that's helpful.
WILLIS: All right. Well, let's talk about marketing, because that is very tricky if you're selling on your own.
SAMBROTTO: Right, right.
WILLIS: Big job. How do I go about dealing with it?
SAMBROTTO: That's the hardest part for someone who's not using a Realtor. Nowadays, though, there are a number of cost-effective and affordable means of doing that. Again, most are going to be on the Internet. And the Internet, really, is a great way for showcasing real estate, it turns out. You can do color photos, you can do, you know, 3,000-word description. And it's all easily searched by buyers.
WILLIS: But Colby, do I have to be a brain (UNINTELLIGIBLE) surgeon about technology to pull that off?
SAMBROTTO: You shouldn't. I mean, most sites, if it's, if they're worth their, you know, worth their salt are going to be very user-friendly. And you can go in, and usually within the space of about half an hour, get your ad up and running on a reputable Web site.
WILLIS: How do I know, though, that I've picked a Web site where there are lots of people going?
SAMBROTTO: That's a tough thing to do.
WILLIS: Because, you know, some of them are just fly-by-nights (UNINTELLIGIBLE).
SAMBROTTO: Sure. It's easy to put up a Web site and charge someone for a listing and then never do anything. The way to do that is to go to a company called Alexa.com. That's A-L-E-X-A-dot-com. And I think they're owned by Amazon. But they actually rank Web sites based on traffic. And it's important, if you're using a Web site to market your property, to make sure that there's actually traffic going to that Web site.
WILLIS: Any other way to market? I mean, real-world, bricks- and-mortar ways of marketing?
SAMBROTTO: Sure. We suggest to our customers that they use our ads, for instance, in conjunction with a local classified ad in their newspaper. You know, those little ads, they're, everything's abbreviated. Doesn't necessarily convey the strengths of a property. But used in conjunction with the Web, can really showcase the property.
And, of course, yard signs.
WILLIS: All right. So you say I've got to find a qualified buyer. What does that mean?
SAMBROTTO: That means someone who's actually in a position financially to purchase your home. Before you invest the time and effort in showing your home to anyone who comes across your ad on the Internet or in your local newspaper, you want to make sure that they're actually able to purchase that home, and that can be done through a variety of methods. Most of them are online. In fact, our customers get a free qualifications tool.
WILLIS: Now, you know, if I'm not hiring a Realtor, it seems to me that the other professionals in the mix will be all that more important. Do I spend a lot of time getting the right attorney, for example?
SAMBROTTO: It's important. It's an important process. It's important part of the process. Generally speaking, east of the Mississippi, and this is just a rule of thumb, people use real estate attorneys for the closing. West of the Mississippi, they use title companies. But you should invest some time researching the quality of the person you're hiring, sure.
WILLIS: Makes sense. Colby, thank you so much for being with us.
SAMBROTTO: Thanks for having me.
WILLIS: Coming up on OPEN HOUSE, our weekend project, a closet makeover. Quit digging for your clothes and make the most of a small space.
And later, you may know her as the domestic diva, but Martha Stewart is also a real estate guru. We take a look at her savvy investment skills.
That's all coming up next.
(COMMERCIAL BREAK)
(BEGIN VIDEOTAPE)
WILLIS: Welcome back to OPEN HOUSE and weekend project, where we're making the most of a small closet.
We're at the home of Katey (ph) and Dan Volts (ph) in Maplewood, New Jersey.
Katey and Dan, so good to see you.
UNIDENTIFIED FEMALE: Good to see you too. Thanks.
WILLIS: So what do you guys hope to accomplish with this?
UNIDENTIFIED FEMALE: Well, our closets, our house is about 80 years old, and the closets are not really accommodating for a growing family, which is what we have. And so we're really hoping to just make the most of our space.
WILLIS: This is a problem a lot of people have, lots of closets, but they're all tiny, right, Dan?
UNIDENTIFIED MALE: That's exactly right. We're both working professionals, so there's a lot of different clothes that we need to store, a lot of suits, a lot of pants, a lot of shirts, a lot of handbags, and a lot of shoes.
UNIDENTIFIED FEMALE: (UNINTELLIGIBLE).
WILLIS: Well, let's get started.
(voice-over): First step, clean out the closet.
UNIDENTIFIED MALE: She's really got a lot of pants.
WILLIS: Next, take the measurements. For Katey and Dan, a quick way to create more hanging space was to add Closet Maid Super Slide. Hangers slide freely, allowing more room for clothing. Use the templates on the packaging to position, mark, and drill for the wall brackets you need. Then cut the hanger bar to the length of your closet.
(on camera): So tell me, is this something I can do myself?
UNIDENTIFIED MALE: Absolutely. This is a product that's made for the consumer to do them by themselves.
WILLIS (voice-over): Now, you're ready for installation.
UNIDENTIFIED MALE: We're installing the hanging track, which is the support for the closet system.
And now we're attaching standards. These are 84-inch standards. They go no more than 24 inches apart.
WILLIS (on camera): What are they hooking onto there?
UNIDENTIFIED MALE: The hang tractor (UNINTELLIGIBLE).
(UNINTELLIGIBLE) spaces.
The 84-inch ones allow you more versatility. (UNINTELLIGIBLE) top to bottom in terms of rearranging shelving, getting the maximum amount of shelving.
UNIDENTIFIED MALE: And then we're ready for brackets.
And then what we're going to do in here is, double hang, which is going to be clothes over clothes, or pants, shirts over pants.
WILLIS: So you mean there are going to be two levels.
UNIDENTIFIED MALE: Two levels (UNINTELLIGIBLE).
We are ready for the shelving.
WILLIS (voice-over): And the cost?
UNIDENTIFIED MALE: For a closet typical of this size, you're probably looking at anywhere between $75 and $100.
WILLIS: Well, that's not very much money.
UNIDENTIFIED MALE: No.
WILLIS: And can I do it in a weekend?
UNIDENTIFIED MALE: You can do it in a couple hours.
WILLIS: Do it in a couple hours.
(voice-over): For Katey and Dan, their old closet clutter is no longer a concern.
(on camera): OK, Katey and Dan, let's see the finished product.
UNIDENTIFIED FEMALE: OK.
Oh, my gosh, that looks great.
WILLIS: Do you like it?
UNIDENTIFIED FEMALE: (UNINTELLIGIBLE) fantastic.
UNIDENTIFIED MALE: It looks terrific. They did a great job.
WILLIS: It's a lot more organized.
UNIDENTIFIED FEMALE: It's much more organized.
UNIDENTIFIED MALE: No doubt.
UNIDENTIFIED FEMALE: It looks great. And then much more efficient use of our space. (END VIDEOTAPE)
WILLIS: What a cute couple.
For a quick way to clean up your kids' closets, try a basket for their shoes. They're more likely to toss their shoes in a basket than line them up neatly on the floor.
Up next on OPEN HOUSE, who knew house arrest could look like this? We take a look at Martha Stewart's Bedford estate and her other multimillion-dollar property.
But first, our mortgage snapshot.
(COMMERCIAL BREAK)
WILLIS: Martha Stewart is out of prison and beginning five months of house arrest.
She popularized the idea that your home is your castle. And with real estate like hers, well, house arrest may not be so bad.
(BEGIN VIDEOTAPE)
WILLIS (voice-over): Martha Stewart left prison early Friday, $500 million wealthier than she entered it, a billionaire again, at least on paper.
And it's not just her company stock that's soaring. She's a savvy real estate investor, holding more than $40 million worth of property.
House arrest is here, this home, sitting on 153 acres of beautiful rolling farmland in Bedford, New York. She paid $15 million for it. Now it's worth about $25 million.
She has Turkey Hill in Westport, Connecticut, site of her popular TV show, bought 25 years ago for less than $500,000. Today, it's worth $5 million.
PAUL PURCELL, BRADDOCK AND PURCELL REAL ESTATE: She gets not only what happens inside the house right, but she gets the house right. She gets the location right. Now, clearly, Martha's starting with a lot of money to begin with. But she's made some very astute choices. She's bought in absolutely superior locations, she's bought beautiful properties that could be renovated, could be enhanced even further than they were.
WILLIS: Over the years, the domestic diva has owned two estates in East Hampton, the exclusive summer playground for Manhattan's elite. She still holds her $15 million estate on Lily Pond Lane but sold another. Who needs it when you have an ankle bracelet keeping you on the farm?
(END VIDEOTAPE) WILLIS: Stewart will definitely eat in style while under house arrest. She's hired the former chef from New York's famed Le Cirque Restaurant.
Next week on OPEN HOUSE, moving scams are more prevalent than you think. We show you how to protect your belongings.
And our weekend project, fabulous bathrooms. We'll show you how to install a new toilet and sink.
Plus, we want to hear from you. Send us your comments, your questions, to openhouse@cnn.com.
Thanks for watching OPEN HOUSE.
Coming up, "DOLANS UNSCRIPTED."
But first, a look at the day's headlines.
Have a great weekend.
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