Submitted by Kim Lewis:
With the recent change of Mortgage opportunities, the Reverse Mortgage market is showing another option available to the senior segment of America. These loans are customarily used to allow the homeowner to convert a portion of the equity in their home to cash. They may need to use this cash for living expenses, or the borrower may need to defer the payment of their mortgage to lower monthly expense. The borrower remains in their house as long as possible, while the mortgage will not require any payments during this period. Repayment of the loan will occur when the borrower is no longer resident of the house, when it is sold, or refinanced by the borrower.
Reverse Mortgages offer financial freedom for many reasons:
A more comfortable retirement
Plans to travel
Help your grandchildren pay for college
Medical bills or other expenses
Home Improvements
Worry less about money
If you own your own home, as long as you live in it, you will maintain ownership, with no time limit. You will never make a payment on this loan, as long as you live in the home. You will never owe more than the value of your home at the time of loan approval. You can refinance whenever you want with no penalty. The cash you receive from this loan is tax-free.
To qualify for a Reverse Mortgage loan, you must own your own home, you must be 62 or older, and you should have a good amount of equity built up in your home. The homes that are eligible are single-family homes, condominiums, townhouses, manufactured homes, and 1-4 family owner-occupied residences. There are no medical or income requirements, no risk of default, and no restrictions on how you use your money.
You can choose payment options that suit you:
A lump sum upfront payment
Tenure- equal monthly payments
Term- equal monthly payments for a fixed period of months selected
Line of Credit- unscheduled payments or installments, at times and in amounts of
borrower's choosing until the line of credit is exhausted.
Modified Tenure- combination of line of credit with monthly payments for a fixed period
period of months selected by the borrower.
The amount of the loan is based on the appraised value of the house, the current interest rate, and the age of the borrower, or FHA mortgage limits in your area; whichever is less. The older the borrower and the longer you have owned the house, allows for a larger amount of cash available.
Surprisingly, the value of the house and the monthly payments are not adjusted during the course of the loan. The monthly payout does not stop, and the repayment of the loan is never more than the value at the time the loan is due. The “Tenure” payout seems to be the choice which allows continuous cash monthly as long as you reside in the home. The other payout options have limits on the time payout occurs. There is no obligation for the borrower to have the property re-appraised or a requirement of repair in future years.
The FHA Insured products are the most secure. These federally secured loans assure the borrower that changes in the home value, over the course of time, will not fluctuate the payout amount the borrower receives. Nearly 99% of the loans are based on adjustable rates of interest. The actuarial goal is to average 5.5% interest rate over the length of the loan. These changing rates are not directly affecting the borrower, as there are no payments required during the course of the loan.
But, be aware that as the loan ages, the interest will continue to accrue over time. When you no longer occupy your home as your principal residence, the loan becomes due. The amount due will be the total funds you received from the mortgage, the initial fees and closing costs financed as part of the loan, plus accrued interest. The repayment amount will never be more than the value of your home at the time the loan is due, for your protection. Should any equity remain after the debt is paid, this amount would become part of the estate for beneficiaries.
There are a few concerns you may want to consider:
The borrowers must be age 62 or older. If the qualifying spouse passes away, the younger spouse will not have the benefits of the loan. This means, the loan will become due. For security, you may want to wait until both are age eligible, before applying for the loan.
The fees charged for this type of loan could be up to 2x greater than normal loan closing costs, due to FHA Insurance and other factors. In most cases, the fees and costs are capped.
The equity in your home gradually disappears due to the accrued interest on the loan. So, as you receive payouts from this loan, you are charged interest on this obligation, which will be due at the end of the loan period.
The amount of cash you may draw from this loan may be greatly limited by your age, current interest rates, appraised value of your property, FHA mortgage limits in your area, and any current mortgage obligations outstanding on the property.
Many homeowners who have been conditioned to pay their debts, find that the obligation of this loan is uncomfortable for them. Those who have satisfied their original loan on their home, now have burdened their property with another debt.
The Federally insured reverse mortgages offer safeguards:
Advanced counseling to ensure that you understand fully about reverse mortgages and
your other options
Limits on the interest rate and origination fee
A ceiling on the repayment amount – it can never exceed the value of your home
Federally mandated consumer disclosures
The National Reverse Mortgage Lenders Association ( NRMLA) can provide information on where to find a Lender: Web site, http://www.reversemortgage.org. or call
NRMLA, 1-866-264-4466.
Tuesday, November 11, 2008
Wednesday, November 5, 2008
Thinking Like a Banker
Submitted by Sean Robles
If you are going to invest in real estate, the best thing that you can do for your sanity and your portfolio is to think like your banker. What do I mean by this? Your banker is not in the risk-taking business. Your banker is in the risk management business. Does this philosophy work? Here’s a test. In any city, look for the largest, tallest building. Odds are that it’s owned by either a bank, or an insurance company. Hmm. Both are industries that make it their business to effectively manage risk.
When you look at property for the purpose of renting it, you should take a look at the same numbers that your banker would, whether it’s a single family unit, or a 100 unit mega-complex. The first set of numbers you should look at is your APOD, or Annual Property Operating Data. A good agent will be able to provide this to you.
Once you have your APOD filled out as accurately as possible, you will have a crucial number: your Net Operating Income, or NOI. Note that your mortgage payments (debt servicing) are not included in NOI.
How does your banker use the NOI of a property? Once they have the NOI, they are going to annualize the principal and interest payments (PI) for the property. They are going to divide the NOI by the annualized debt to come up with a number called the Debt Coverage Ratio (DCR). This is also called a Debt Service Ratio:
____NOI____
Annualized Debt DCR
Most bankers will insist that the DCR be equal or greater than 1.2. In other words, after all of the expenses associated with the property, it is still making 20% more than the debt. If bankers insist that large scale investment property meet this criteria, doesn’t it make sense to insist on this on every one of your properties?
If you are going to invest in real estate, the best thing that you can do for your sanity and your portfolio is to think like your banker. What do I mean by this? Your banker is not in the risk-taking business. Your banker is in the risk management business. Does this philosophy work? Here’s a test. In any city, look for the largest, tallest building. Odds are that it’s owned by either a bank, or an insurance company. Hmm. Both are industries that make it their business to effectively manage risk.
When you look at property for the purpose of renting it, you should take a look at the same numbers that your banker would, whether it’s a single family unit, or a 100 unit mega-complex. The first set of numbers you should look at is your APOD, or Annual Property Operating Data. A good agent will be able to provide this to you.
Once you have your APOD filled out as accurately as possible, you will have a crucial number: your Net Operating Income, or NOI. Note that your mortgage payments (debt servicing) are not included in NOI.
How does your banker use the NOI of a property? Once they have the NOI, they are going to annualize the principal and interest payments (PI) for the property. They are going to divide the NOI by the annualized debt to come up with a number called the Debt Coverage Ratio (DCR). This is also called a Debt Service Ratio:
____NOI____
Annualized Debt DCR
Most bankers will insist that the DCR be equal or greater than 1.2. In other words, after all of the expenses associated with the property, it is still making 20% more than the debt. If bankers insist that large scale investment property meet this criteria, doesn’t it make sense to insist on this on every one of your properties?
Common Mistakes Home Seller Make
Submitted by Lorrie Pierce
Selling a home is an experience many people look forward to with about as much enthusiasm as a root canal or an IRS audit. Perhaps it is because they know that with such an important investment, one misstep or wrong turn could be more than a “learning experience.” Making a mistake in selling a home can be a costly blunder that not only jeopardizes the sale, but also can mean hundreds or thousands of dollars in lost profit.
What many people do not know is there is an easy way to avoid making the mistakes most commonly involved in selling a home. In fact, many homeowners make some of the same errors when selling their home, no matter how many homes they’ve sold in the past. In some cases, the mistakes just make the selling process more tedious. In others, they are fatal to the sale. By understanding these mistakes, home Sellers can arm themselves with information and gain a better chance of achieving a profitable sale.
1. Using a “Convenient” Realtor instead of an “Experienced” Realtor:
When working with a real estate Agent, it's critical that you have full confidence in that Agent's experience and education. A skilled, knowledgeable Agent should be able to explain to you exactly why your home needs to be priced at a certain level - compared to active listings and recent sales of homes similar to yours. Experienced Agents also know exactly what the current pool of Buyers are looking for in relation to particular styles and price ranges of properties. A skilled Agent can recommend changes that will enhance the salability of your home, thus increasing the price - and/or decreasing the length of time before a sale.
2. Asking Too Much by Basing Asking Price on needs or emotion rather than market value:The single biggest mistake folks make is setting their asking price too high. In today’s down market, homeowners need to price conservatively or they risk turning off potential Buyers. Gone are the days when you can expect to sell your home for as much as your neighbor did just six months ago. Many Sellers base their pricing on how much they paid for their home. If your home is not priced competitively, home Buyers will prefer larger or better homes in the same price range, increasing your time-to-sell. When your price is later lowered, Buyers may be wary because they suspect other reasons the house has remained unsold so long.
3. Forgetting about health and safety issues:
Be upfront and disclose to your Realtor any problems with the property. The problems are going to be discovered anyway. A decade ago, health and safety issues were rarely a part of the typical real estate transaction. Today, however, it's common for inspections relating to health, safety, and even environmental concerns to be a part of most sales contracts. Moreover, in many states, the Seller must disclose to the Buyer any knowledge of existing property problems. In many cases, these issues have been or can be factored into the home's listing price.
4. Failing to Prepare Your Home for the Buyer's Eye:
Buyers look for homes, not houses. Buying a home is an emotional decision and they end up buying the home that makes them most comfortable. Often times, Buyers walk in through the front door and gasped "Ah-ha," and immediately fall in love with the house. Owners who fail to make necessary repairs, who don't spruce up the house inside and out, who don't do all the little things that make a house show like a million bucks will suffer from lower offers and longer market time.
5. Paying for a Home Stager:
In a depressed market, it's more important than ever that your property stands out from the competition. But unless you're trying to sell a multimillion-dollar mansion, you don't need to pay a professional to stage your home. There are a number of free or inexpensive things you can do on your own to get your house into show-room condition. Most importantly, paint the walls. Next, get rid of all the clutter, excess furniture and family knickknacks. Finally, make all the necessary repairs before your first open house. If a Buyer sees a small problem, say, a leaky faucet, he's likely to wonder about larger issues like the furnace or roof.
.
6. Complacent marketing when selling a home:
When selling your home there are no guarantees that the ultimate buyer of your home will have simply walked through the front door. In many cases you may have to bring your home to the Buyer. Effective marketing will help ensure that your property receives maximum exposure to attract a ready, willing and able buyer in the shortest period of time. Ask your Realtor to list for you all of the ways he/she intends to market your home and on what time-line. Also, be sure to ask about the home being advertised on the Internet.
7. "Hard Selling" During Showings:
People buy homes on emotion, not logic. Buying a home is always an emotional decision. People like to get a feel for a house to see if it is comfortable for them. It's difficult for them to get comfortable in a home if you follow them around, telling them all of the things that you've done to the house and pointing out every improvement that you've made. It may even have the opposite effect that you want to accomplish by making the prospective buyer feel that they are intruding into your private space. Another good idea is to have a photo album on the kitchen counter with photos of the home during other seasons.
8. Questioning the First Offer:
Too many sellers reject their first offer, even if it's close to or at full asking price. Holding out for more money is a strategy that rarely works, especially at a time when credit is tight, lending requirements for mortgages are in flux and potential buyers have less purchasing power. The reality is that in any market a home's first offer is often its best.
9. Failing to Respond to All Offers
What if you get an offer that's simply too low? Don't reject it outright. See if you can negotiate. First of all, you can't blame someone for testing the market — after all, in today's market, many buyers are confident that they have the upper hand. Secondly, by entering into negotiations with one party, you'll gain leverage with other potential buyers.
10. Picking the Wrong Buyer
Now more than ever, Sellers need to select their Buyers carefully. As we mentioned earlier, thanks to all the defaulted loans in the sub-prime market, Lenders are tightening their lending practices, making it more difficult for consumers to qualify for mortgages. So it's critical to find a Buyer with a recent prequalification letter (issued no later than four to six weeks ago) for a loan.
11. Not knowing your rights and obligations:
The contract you sign to sell your property is a complex and legally-binding document. An improperly written contract can allow the purchaser to void the sale, or cost you thousands of unnecessary dollars. Have your Realtor fully explain the contract or have your Lawyer review it before acceptance.
12. Not Using a Written Purchase Agreement:
Many Sellers think their home is sold, only to find out weeks or even months later that the Buyer was not able to obtain a home loan. Other Sellers find out too late that dozens of items such as surveys, title insurance contingencies, assessments, tax pro-rations, pest inspections, structural inspections, and a host of other details can come back to haunt them if not properly addressed right at the very beginning.
13. Not planning your move early enough:
Many sellers simply don't plan their move early enough and then feel totally overwhelmed at the time of moving out of the house. If you are able to move at any time of the year, don't wait until summer, the peak-moving season. Consider also that the first and last few days of the month are extra busy. If you plan to sell your house, get it on the market as soon as possible.
Selling a home is an experience many people look forward to with about as much enthusiasm as a root canal or an IRS audit. Perhaps it is because they know that with such an important investment, one misstep or wrong turn could be more than a “learning experience.” Making a mistake in selling a home can be a costly blunder that not only jeopardizes the sale, but also can mean hundreds or thousands of dollars in lost profit.
What many people do not know is there is an easy way to avoid making the mistakes most commonly involved in selling a home. In fact, many homeowners make some of the same errors when selling their home, no matter how many homes they’ve sold in the past. In some cases, the mistakes just make the selling process more tedious. In others, they are fatal to the sale. By understanding these mistakes, home Sellers can arm themselves with information and gain a better chance of achieving a profitable sale.
1. Using a “Convenient” Realtor instead of an “Experienced” Realtor:
When working with a real estate Agent, it's critical that you have full confidence in that Agent's experience and education. A skilled, knowledgeable Agent should be able to explain to you exactly why your home needs to be priced at a certain level - compared to active listings and recent sales of homes similar to yours. Experienced Agents also know exactly what the current pool of Buyers are looking for in relation to particular styles and price ranges of properties. A skilled Agent can recommend changes that will enhance the salability of your home, thus increasing the price - and/or decreasing the length of time before a sale.
2. Asking Too Much by Basing Asking Price on needs or emotion rather than market value:The single biggest mistake folks make is setting their asking price too high. In today’s down market, homeowners need to price conservatively or they risk turning off potential Buyers. Gone are the days when you can expect to sell your home for as much as your neighbor did just six months ago. Many Sellers base their pricing on how much they paid for their home. If your home is not priced competitively, home Buyers will prefer larger or better homes in the same price range, increasing your time-to-sell. When your price is later lowered, Buyers may be wary because they suspect other reasons the house has remained unsold so long.
3. Forgetting about health and safety issues:
Be upfront and disclose to your Realtor any problems with the property. The problems are going to be discovered anyway. A decade ago, health and safety issues were rarely a part of the typical real estate transaction. Today, however, it's common for inspections relating to health, safety, and even environmental concerns to be a part of most sales contracts. Moreover, in many states, the Seller must disclose to the Buyer any knowledge of existing property problems. In many cases, these issues have been or can be factored into the home's listing price.
4. Failing to Prepare Your Home for the Buyer's Eye:
Buyers look for homes, not houses. Buying a home is an emotional decision and they end up buying the home that makes them most comfortable. Often times, Buyers walk in through the front door and gasped "Ah-ha," and immediately fall in love with the house. Owners who fail to make necessary repairs, who don't spruce up the house inside and out, who don't do all the little things that make a house show like a million bucks will suffer from lower offers and longer market time.
5. Paying for a Home Stager:
In a depressed market, it's more important than ever that your property stands out from the competition. But unless you're trying to sell a multimillion-dollar mansion, you don't need to pay a professional to stage your home. There are a number of free or inexpensive things you can do on your own to get your house into show-room condition. Most importantly, paint the walls. Next, get rid of all the clutter, excess furniture and family knickknacks. Finally, make all the necessary repairs before your first open house. If a Buyer sees a small problem, say, a leaky faucet, he's likely to wonder about larger issues like the furnace or roof.
.
6. Complacent marketing when selling a home:
When selling your home there are no guarantees that the ultimate buyer of your home will have simply walked through the front door. In many cases you may have to bring your home to the Buyer. Effective marketing will help ensure that your property receives maximum exposure to attract a ready, willing and able buyer in the shortest period of time. Ask your Realtor to list for you all of the ways he/she intends to market your home and on what time-line. Also, be sure to ask about the home being advertised on the Internet.
7. "Hard Selling" During Showings:
People buy homes on emotion, not logic. Buying a home is always an emotional decision. People like to get a feel for a house to see if it is comfortable for them. It's difficult for them to get comfortable in a home if you follow them around, telling them all of the things that you've done to the house and pointing out every improvement that you've made. It may even have the opposite effect that you want to accomplish by making the prospective buyer feel that they are intruding into your private space. Another good idea is to have a photo album on the kitchen counter with photos of the home during other seasons.
8. Questioning the First Offer:
Too many sellers reject their first offer, even if it's close to or at full asking price. Holding out for more money is a strategy that rarely works, especially at a time when credit is tight, lending requirements for mortgages are in flux and potential buyers have less purchasing power. The reality is that in any market a home's first offer is often its best.
9. Failing to Respond to All Offers
What if you get an offer that's simply too low? Don't reject it outright. See if you can negotiate. First of all, you can't blame someone for testing the market — after all, in today's market, many buyers are confident that they have the upper hand. Secondly, by entering into negotiations with one party, you'll gain leverage with other potential buyers.
10. Picking the Wrong Buyer
Now more than ever, Sellers need to select their Buyers carefully. As we mentioned earlier, thanks to all the defaulted loans in the sub-prime market, Lenders are tightening their lending practices, making it more difficult for consumers to qualify for mortgages. So it's critical to find a Buyer with a recent prequalification letter (issued no later than four to six weeks ago) for a loan.
11. Not knowing your rights and obligations:
The contract you sign to sell your property is a complex and legally-binding document. An improperly written contract can allow the purchaser to void the sale, or cost you thousands of unnecessary dollars. Have your Realtor fully explain the contract or have your Lawyer review it before acceptance.
12. Not Using a Written Purchase Agreement:
Many Sellers think their home is sold, only to find out weeks or even months later that the Buyer was not able to obtain a home loan. Other Sellers find out too late that dozens of items such as surveys, title insurance contingencies, assessments, tax pro-rations, pest inspections, structural inspections, and a host of other details can come back to haunt them if not properly addressed right at the very beginning.
13. Not planning your move early enough:
Many sellers simply don't plan their move early enough and then feel totally overwhelmed at the time of moving out of the house. If you are able to move at any time of the year, don't wait until summer, the peak-moving season. Consider also that the first and last few days of the month are extra busy. If you plan to sell your house, get it on the market as soon as possible.
Monday, November 3, 2008
What Affects Real Estate Values?
Submitted by Wes Childers
True real estate value consists of a balanced point where one person, the Owner, values the money more than the property, and another person, the Buyer, values the property more than the money. This point can vary between various Buyers and Sellers depending on their motivations. The best way to predict this monetary point is to become intimately familiar with resent sales of similar properties, not just the sales prices, but every aspect of the transactions. For example, the Seller’s circumstances leading to their motivation to sell. This is why it’s best left to a local professional that is involved daily in every aspect of local transactions. Would you perform surgery on a loved one only knowing the success rate of similar procedures?
The days of listing at any price and waiting for the market to catch up have come to an end. In this market an overpriced home may never sell unless the price is reduced or something is done to increase the value. A 30 day sale price is normally less than a 60 or 90 day price, but this does not mean you can increase the value by waiting longer. In most cases if it hasn’t sold in 90 days, it’s priced incorrectly.
One must look to the reality of the market for cues. What are the houses that are selling in less than 30 days actually selling for? How much above true market value are they listed? What’s motivating the sellers and buyers?
In most markets, the 30-day price is no more than three percent above the actual selling price, the price they would take for the house if it could be sold tonight. Starting at a higher price only prolongs the process.
One has to be really aware of what the true market is doing, that’s why there are real estate professionals. If my life were on the line, I’d make sure to spend whatever extra time it took to make sure I knew exactly what the real market value is.
The truth is most listings that eventually expire, are expired the night they are signed. Most of the time, the Agent knows it when they walk out the door. They’re not doing their clients any favors by taking an overpriced listing and hoping they can get them to reduce the price later. If the sellers want more money they need to do something to make their properties more like the ones that are selling for more. Sometimes this can be simple and inexpensive, other times there are factors that can’t be changed.
No matter how hard you try, you can’t sell a $100 bill for $110 in a knowledgeable crowd, and today’s homebuyers are certainly a knowledgeable crowd. They know value when they see it.
Price is a BIG deal: a good agent gets it right and then makes sure it stays right by closely monitoring the dynamics of the market.
True real estate value consists of a balanced point where one person, the Owner, values the money more than the property, and another person, the Buyer, values the property more than the money. This point can vary between various Buyers and Sellers depending on their motivations. The best way to predict this monetary point is to become intimately familiar with resent sales of similar properties, not just the sales prices, but every aspect of the transactions. For example, the Seller’s circumstances leading to their motivation to sell. This is why it’s best left to a local professional that is involved daily in every aspect of local transactions. Would you perform surgery on a loved one only knowing the success rate of similar procedures?
The days of listing at any price and waiting for the market to catch up have come to an end. In this market an overpriced home may never sell unless the price is reduced or something is done to increase the value. A 30 day sale price is normally less than a 60 or 90 day price, but this does not mean you can increase the value by waiting longer. In most cases if it hasn’t sold in 90 days, it’s priced incorrectly.
One must look to the reality of the market for cues. What are the houses that are selling in less than 30 days actually selling for? How much above true market value are they listed? What’s motivating the sellers and buyers?
In most markets, the 30-day price is no more than three percent above the actual selling price, the price they would take for the house if it could be sold tonight. Starting at a higher price only prolongs the process.
One has to be really aware of what the true market is doing, that’s why there are real estate professionals. If my life were on the line, I’d make sure to spend whatever extra time it took to make sure I knew exactly what the real market value is.
The truth is most listings that eventually expire, are expired the night they are signed. Most of the time, the Agent knows it when they walk out the door. They’re not doing their clients any favors by taking an overpriced listing and hoping they can get them to reduce the price later. If the sellers want more money they need to do something to make their properties more like the ones that are selling for more. Sometimes this can be simple and inexpensive, other times there are factors that can’t be changed.
No matter how hard you try, you can’t sell a $100 bill for $110 in a knowledgeable crowd, and today’s homebuyers are certainly a knowledgeable crowd. They know value when they see it.
Price is a BIG deal: a good agent gets it right and then makes sure it stays right by closely monitoring the dynamics of the market.
What the Government Bailout Means to Real Estate Values
Submitted by Violet Harrington
We've all heard the news. Borrowers defaulted on sub-prime mortgages in record numbers. The subsequent foeclosures led to a collapse of a variety of investment funds which in turn led to the collapse of banks and investment houses. The Federal Government rode to rescue with a $700+ billion rescue plan and while Wall Street is moving toward stabilization there is concern on Main Street with many poeple asking the same question. What will the bailout do for real estate values and the value of my home?
While property values have fallen over the past year, the amount has varied dramatically from region to region. In areas with large numbers of sub-prime mortgages such as Las Vegas and Florida the value of real estate has fallen over 30 per cent in the past year. In other regions such as the Northwest, values have fallen only 9 per cent in the same time period. In addition, those areas that have already seen the largest decrease in value will continue to see the largest slide as another wave of sub-prime mortgages go into default in 2009 (CNBC).
The government bail out plan will do little to reverse this trend in the short term. The plan is designed to pump money into the banking system which in time it is hoped will increase the availability of credit for consumers and potential home buyers. However most experts agree that any benefits of the plan toward stabilizing real estate values will not be seen for at least the first six months of 2009 and could take as long as two years. As a result we should expect real estate values to continue to go down in the short term before we see any movement toward stabilization and recovery.
For those looking to purchase real estate it is a very attractive time according to Alex Perriello, president of Reaology Franchise Group,"Now that the Federal Government controls Fannie Mae and Freddie Mac, in addition to FHA and VA, these traditional sources of mortgage funding are still readily available with expanded loan limits set earlier this year. The financial news media would lead people to believe the unless your last name is Rockerfeller, you won't be able to get a mortgage, which is factually incorrect." Perriello goes on to comment that it is a lack of confidence not money that is keeping people who could buy real estate on the sidelines and that in turn is contributing to the decrease in value (RIS Media).
While the bail out plan is designed to stabilize and then help the real estate market recover, all indications are that real estate values will not be affected by the plan for some time. For the near future the value of real estate will be a condition of too much supply and too little demand. The bail out plan hopes to create buying confidence but increased confidence will only come when real estate inventories are reduced, financing becomes available to a greater number of people, and real estate values become stable.
We've all heard the news. Borrowers defaulted on sub-prime mortgages in record numbers. The subsequent foeclosures led to a collapse of a variety of investment funds which in turn led to the collapse of banks and investment houses. The Federal Government rode to rescue with a $700+ billion rescue plan and while Wall Street is moving toward stabilization there is concern on Main Street with many poeple asking the same question. What will the bailout do for real estate values and the value of my home?
While property values have fallen over the past year, the amount has varied dramatically from region to region. In areas with large numbers of sub-prime mortgages such as Las Vegas and Florida the value of real estate has fallen over 30 per cent in the past year. In other regions such as the Northwest, values have fallen only 9 per cent in the same time period. In addition, those areas that have already seen the largest decrease in value will continue to see the largest slide as another wave of sub-prime mortgages go into default in 2009 (CNBC).
The government bail out plan will do little to reverse this trend in the short term. The plan is designed to pump money into the banking system which in time it is hoped will increase the availability of credit for consumers and potential home buyers. However most experts agree that any benefits of the plan toward stabilizing real estate values will not be seen for at least the first six months of 2009 and could take as long as two years. As a result we should expect real estate values to continue to go down in the short term before we see any movement toward stabilization and recovery.
For those looking to purchase real estate it is a very attractive time according to Alex Perriello, president of Reaology Franchise Group,"Now that the Federal Government controls Fannie Mae and Freddie Mac, in addition to FHA and VA, these traditional sources of mortgage funding are still readily available with expanded loan limits set earlier this year. The financial news media would lead people to believe the unless your last name is Rockerfeller, you won't be able to get a mortgage, which is factually incorrect." Perriello goes on to comment that it is a lack of confidence not money that is keeping people who could buy real estate on the sidelines and that in turn is contributing to the decrease in value (RIS Media).
While the bail out plan is designed to stabilize and then help the real estate market recover, all indications are that real estate values will not be affected by the plan for some time. For the near future the value of real estate will be a condition of too much supply and too little demand. The bail out plan hopes to create buying confidence but increased confidence will only come when real estate inventories are reduced, financing becomes available to a greater number of people, and real estate values become stable.
Friday, October 31, 2008
Rehabbing For Profit
Submitted by Shawna Harlin
So you've decided that it might be a good idea to rehab a house for profit! Congratulations on your new adventure. If this is your first time, or your fiftieth time, these are some things you will want to consider.
1. The neighborhood--a neighborhood can be absolutely critical when choosing a property for rehabbing. Ideally the home you are looking at should be one of the worst homes in the neighborhood. Take into consideration any negative comments you hear about a neighborhood. In small towns especially, a bad reputation can make a huge difference in net sales price, holding times, and market exposure. It is especially important to remember that location is much harder to overcome than fixing a problem. Remember to fix the home only to what the neighborhood will bear.
2. Know the cost of your money! How much is it going to cost to get the loan, pay interest on materials, pay holding costs, etc. One never knows how long they will need to hold a property. It is easy to underestimate the amount of time it will take to accomplish fixing and selling your property. Knowing the average days on market is an important tool for planning how many payments may need to be made.
3. How much is it going to cost for fix up? I'm not talking about how much you think it will cost, please do yourself a favor and get bids from qualified contractors to help guide you. When you open up something to fix it, chances are that something else may come up that was unexpected, so carefully weigh what things are most important to accomplish.
4. Know your market! Is the market in an upward, or downward trend? If it is going down, can you get rid of the property once it is finished? Also take into consideration what times of the year are slower times for exposure and sales.
5. What kinds of permits are going to be needed? Are there any restrictions as to how much can be done to the home without having to bring it up to the current code? Do you need a licensed contractor to perform the work? Who will be getting the permits? These things affect how much time and money certain projects will cost you.
6. When figuring your holding costs, have you figured in the property taxes and insurance/flood insurance? Getting caught with these bills can make things very difficult as you wait for the property to sell.
7. Are there any "Big Things" that need to be done, so that the next consumer will be comfortable with and able to finance their purchase? This includes roofing, electrical, heating, foundations, and plumbing. If there are you should have a plan for mitigating the buyer’s concern. This could include a credit to fix the problem, or having the problem taken care of before entering the marketplace.
8. Material choices should be neutral in color so that they will appeal to a wider range of consumers. They should also be consumer friendly when it comes to cleaning, etc.
9. Take the time to imagine how the home will be lived in and come up with creative choices for fixing and small quirks with the home. (i.e. enough closet space, room for furniture, etc)
10. What type of user are you marketing to? Are you fixing it up to sell, lease option, or rent? Different users need different finishes and different things to be completed.
11. What is the most effective way to use your money? Don't forget that you need to be able to wait out the market to get the most from your investment.
12. When you need to hire a contractor, please do yourself a favor and check his credentials. An inexpensive handyman is no good if the work he does is below standards. Checking on someone's license, bond and insurance is a MUST. Three important things to remember are price, reliability and quality. If a contractor is not reliable, holding costs and time to get the property to market could be adversely affected. Also, please remember to get all bids in writing BEFORE beginning work.
13. When placing an offer on a bank owned property please remember a few things to help your offer be considered more successfully.
A: Make sure the earnest money is substantial enough (many banks want to see at least $1000 minimum on this)
B: Make sure you have a pre-approval, or proof of funds (many banks will ignore an offer without this)
C: Make sure that you can close on time. (many banks charge a steep per day penalty if you must get an extension.
14. Remember which projects will get you the most for your money. Curb appeal will bring you in more buyers and cause you greater market exposure. Staging can be another valuable project because it is easier for the consumer to imagine how they will live in the home. Kitchens and bathrooms will also help in the appeal of your home. These rooms are especially important for families.
15. Hire a Real Estate Professional! A good real estate professional can bring in 15% more for your property on average. A real estate professional should be active in their local community and market as this helps with the amount of exposure your property receives. Also, ask what types of services they offer. Virtual tours, flyers, newspaper and internet are all valuable advertising avenues to get your property the exposure it will need for a quick sale.
So you've decided that it might be a good idea to rehab a house for profit! Congratulations on your new adventure. If this is your first time, or your fiftieth time, these are some things you will want to consider.
1. The neighborhood--a neighborhood can be absolutely critical when choosing a property for rehabbing. Ideally the home you are looking at should be one of the worst homes in the neighborhood. Take into consideration any negative comments you hear about a neighborhood. In small towns especially, a bad reputation can make a huge difference in net sales price, holding times, and market exposure. It is especially important to remember that location is much harder to overcome than fixing a problem. Remember to fix the home only to what the neighborhood will bear.
2. Know the cost of your money! How much is it going to cost to get the loan, pay interest on materials, pay holding costs, etc. One never knows how long they will need to hold a property. It is easy to underestimate the amount of time it will take to accomplish fixing and selling your property. Knowing the average days on market is an important tool for planning how many payments may need to be made.
3. How much is it going to cost for fix up? I'm not talking about how much you think it will cost, please do yourself a favor and get bids from qualified contractors to help guide you. When you open up something to fix it, chances are that something else may come up that was unexpected, so carefully weigh what things are most important to accomplish.
4. Know your market! Is the market in an upward, or downward trend? If it is going down, can you get rid of the property once it is finished? Also take into consideration what times of the year are slower times for exposure and sales.
5. What kinds of permits are going to be needed? Are there any restrictions as to how much can be done to the home without having to bring it up to the current code? Do you need a licensed contractor to perform the work? Who will be getting the permits? These things affect how much time and money certain projects will cost you.
6. When figuring your holding costs, have you figured in the property taxes and insurance/flood insurance? Getting caught with these bills can make things very difficult as you wait for the property to sell.
7. Are there any "Big Things" that need to be done, so that the next consumer will be comfortable with and able to finance their purchase? This includes roofing, electrical, heating, foundations, and plumbing. If there are you should have a plan for mitigating the buyer’s concern. This could include a credit to fix the problem, or having the problem taken care of before entering the marketplace.
8. Material choices should be neutral in color so that they will appeal to a wider range of consumers. They should also be consumer friendly when it comes to cleaning, etc.
9. Take the time to imagine how the home will be lived in and come up with creative choices for fixing and small quirks with the home. (i.e. enough closet space, room for furniture, etc)
10. What type of user are you marketing to? Are you fixing it up to sell, lease option, or rent? Different users need different finishes and different things to be completed.
11. What is the most effective way to use your money? Don't forget that you need to be able to wait out the market to get the most from your investment.
12. When you need to hire a contractor, please do yourself a favor and check his credentials. An inexpensive handyman is no good if the work he does is below standards. Checking on someone's license, bond and insurance is a MUST. Three important things to remember are price, reliability and quality. If a contractor is not reliable, holding costs and time to get the property to market could be adversely affected. Also, please remember to get all bids in writing BEFORE beginning work.
13. When placing an offer on a bank owned property please remember a few things to help your offer be considered more successfully.
A: Make sure the earnest money is substantial enough (many banks want to see at least $1000 minimum on this)
B: Make sure you have a pre-approval, or proof of funds (many banks will ignore an offer without this)
C: Make sure that you can close on time. (many banks charge a steep per day penalty if you must get an extension.
14. Remember which projects will get you the most for your money. Curb appeal will bring you in more buyers and cause you greater market exposure. Staging can be another valuable project because it is easier for the consumer to imagine how they will live in the home. Kitchens and bathrooms will also help in the appeal of your home. These rooms are especially important for families.
15. Hire a Real Estate Professional! A good real estate professional can bring in 15% more for your property on average. A real estate professional should be active in their local community and market as this helps with the amount of exposure your property receives. Also, ask what types of services they offer. Virtual tours, flyers, newspaper and internet are all valuable advertising avenues to get your property the exposure it will need for a quick sale.
Overview of the 'CAP' Rate
Submitted by Daryl Gray
One of my best teachers once said that most of us are audio visual learners. I interpret this as: “ If you want me to learn something you have to draw me a picture and then tell me the story”. Problem is that in each highly specialized field with its own highly specialized phraseology the story telling gets so convoluted that we the story lovers just lose interest and move on to another story. Unfortunately this may cost us money and time if we have chosen income producing property as a haven for our investment dollar.
So here is a user friendly specialized commercial real estate tool that is loaded with information. Cap Rate can give you a quick and easily discernable picture of what a particular income property will pay you in terms of rate of return in the present, expressed as the ratio between a property’s net operating income and its value.
Let’s form a word picture:
If I were to tell you that I made $10.00 on a $100.00 investment you would be able, almost intuitively to say that I made 10% on my investment. This would be expressed as :
Rate of Return = $10 profit
$100 investment
Rate of Return = 10%
Cap Rate is expressed the same way and with just a little algebra you can get some valuable
information when selling and purchasing commercial Real Estate:
Cap Rate = Net Operating Income
Value of the property CR=NOI/V
With just a little more algebra you can solve for the value of the property, or solve for the net operating income:
NOI= V x CR
V = NOI/CR
In general, Cap Rates tend to be consistent in specific geographical areas as long as you take the time to make sure that you compare properties that are similar. If you are considering a purchase, your local commercial Realtor can provide you with these rates and help you discern correctly income and expense information provided by the seller.
There are only two ways to learn; mentors or mistakes.
So stop by Premier and let a Realtor draw you a picture. We make good mentors. Who has time for mistakes!?
One of my best teachers once said that most of us are audio visual learners. I interpret this as: “ If you want me to learn something you have to draw me a picture and then tell me the story”. Problem is that in each highly specialized field with its own highly specialized phraseology the story telling gets so convoluted that we the story lovers just lose interest and move on to another story. Unfortunately this may cost us money and time if we have chosen income producing property as a haven for our investment dollar.
So here is a user friendly specialized commercial real estate tool that is loaded with information. Cap Rate can give you a quick and easily discernable picture of what a particular income property will pay you in terms of rate of return in the present, expressed as the ratio between a property’s net operating income and its value.
Let’s form a word picture:
If I were to tell you that I made $10.00 on a $100.00 investment you would be able, almost intuitively to say that I made 10% on my investment. This would be expressed as :
Rate of Return = $10 profit
$100 investment
Rate of Return = 10%
Cap Rate is expressed the same way and with just a little algebra you can get some valuable
information when selling and purchasing commercial Real Estate:
Cap Rate = Net Operating Income
Value of the property CR=NOI/V
With just a little more algebra you can solve for the value of the property, or solve for the net operating income:
NOI= V x CR
V = NOI/CR
In general, Cap Rates tend to be consistent in specific geographical areas as long as you take the time to make sure that you compare properties that are similar. If you are considering a purchase, your local commercial Realtor can provide you with these rates and help you discern correctly income and expense information provided by the seller.
There are only two ways to learn; mentors or mistakes.
So stop by Premier and let a Realtor draw you a picture. We make good mentors. Who has time for mistakes!?
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