Rents are rising in 2007

It shouldn't be too much of a shock that rents will be going up again. If you consider the number of apartments that were converted to condo's last year, along with sub prime loans restrictions getting tighter, there are fewer rental units available, a growing population in our market and fewer people able to buy, the demand will be higher in the rental market with fewer units available. Think exact opposite of what is happening in the Las Vegas real estate sales market. Throw in the number of people having to get out from under their mortgages either through foreclosure or selling their homes for less than they owe (short sales), rents could get a bit dicey.

Fortunately in our market the residential rental sector should offer some relief in number of available units, but don't expect the prices to be coming down anytime soon. More and more investor owners of real estate are coming to the conclusion that it will cost them less in the long run to eat a few hundred dollars a month to keep a tenant in their home, than to take a big hit all at once just to bail out. Again, good news for those that don't have the ability to buy. I am also seeing my clients that are interested in buying a move up property, or just getting into something new, choosing to look for a good tenant, pulling some equity out of their current home for down payment on a new or new re-sale home and keeping both. The market is great if you are buying, and for those with the ability to turn their existing home into a rental while waiting for the market to get back to an even playing field (this should be about a year away) they are able to really get into something bigger, nicer, or with a pool. The key is to find a tenant that won't destroy the existing home and pay enough in rent to cover most if not all of the mortgage on the property they occupy.

An example of this would be someone in a 3 bedroom home wanting to move up. They pay a current mortgage of $1200.00. They have $90,000 in equity in the current home and pull an additional 40,000 out of the equity for down payment on a new home, costing an additional $266.00. They find a home listed at $410,000, offer $400,000 and require the seller to pay all closing costs. The new mortgage for $360,000 $2,275.44 P&I + the $266 from the equity pull for a new monthly P&I payment of $2,541.44. The old house is rented for $1,000 a month, $200 shy of paying the entire mortgage on that home. Over a 2 year period based on this level, keeping the first home will cost an extra $11,184.00. If that home had been valued at $300,000, selling it would have cost $18,000 in broker fees alone + the sellers closing costs and most likely the seller in our current market would have had to pay the buyers closing costs, ($8,000) as well as probably having to offer the house for below value to get a buyer interested. Now looking at the market in two years when there should be better conditions to sell and with minimal increase in value of 3% per year, the $300,000 will have a value of $318,000. Even with making up the difference from the rent not covering all costs, holding the property in the long run will have actually cost the seller less than selling the property in current market conditions.

Okay back to rents going up, as more and more residential rentals come online, large scale investors will see the need for apartments and we should see new construction begin on those types of properties, but the relief these will provide in lower or at least in rents not rising is a year to 18 months off.

1st time home buyer programs are another alternative for putting your money to better use. If you look at the benefits to owning, whether its increase in equity in the home, tax benefits, or just better quality of life you'll see why getting that first home is so important. Currently the state of Nevada has several 1st time home buyer programs that offer lower interest rates and even in some cases forgivable loans, and down payment assistance. Combine that with the current state of our market being so favorable to buying its definitely something to consider. That will be something to explore on a later post.

If you want more information about the first time home buyer programs, drop me a line at rob@robturney.com and I'll get you the information.

Real Estate is a LONG TERM Investment

The new PMI report on risk factors came out recently

http://biz.yahoo.com/prnews/070619/aqtu143.html?.v=7

rating Las Vegas as having one of the highest risk factors for reduced home prices over the next two years. One of the factors used in determining the risk factors is job growth, and while we just went above the national average in unemployment, I dont think the new hotel jobs that will begin coming online in the next 8 to 12 months were factored into the report.

What the report does remind me of is that Real Estate is a LONG TERM INVESTMENT. Its one of the reasons its such a good investment. The get rich quick flip that house days are over...at least for a while, in our market anyway. By the same token, you can count on real estate eventually going up in value...its not like we have more land being magically created...unless of course you live on an active volcano...but that has its own drawbacks...like catching on fire by getting too close to the lava fields....my point is that home ownership is still an excellant long term way of getting a return on an investment.

The PMI report while confirming that the market was volitile in its expansion and is now settling back down, just means that you have to buy your home smart and choose a good loan product to do it with. The national average for a first time home buyer to live in a home is 4 to 5 years. For move up buyers is 3 to 5 years. In other words even if the market declines slightly, in 5 years that will have changed and most likely the market will have once again shifted to either an even market or back to a sellers market.

Using the right loan product is very important. Interest only loans, or less than 5 year arms are probably not a good choice right now, but interest rates are still at a historically low point and now PMI can be written off like mortgage interest on a residence, so the tax advantages are still very good.

Look the report over, but dont let it freak ya out!

A Great Time To Invest, Buy, Scoop Up, Grab, Gobble, Get Some... REAL ESTATE!

I can't tell you how sick I am of the media and their gloom and doom reports about how "horrible" the real estate market is today. Yes, I understand it is difficult to SELL right now. Sellers can't squeeze every possible penny out of a property, nor can they show a property "as is". It actually takes a bit or work and a realistic attitude about pricing to sell a home right now.

Buying a home however is a no brainer. Even with guidelines being tightened on sub-prime "B paper" loans, this is one of the best times in the last 30YEARS to BUY property.

According to the Federal Reserve historical data on Conventional mortgages, www.federalreserve.gov/releases/h15/data/annual/h15_mortg_NA.txt

the annual conventional mortgage rate has only been under 7% 7 times in the last 30 years. In addition, the average mortgage rate over the last 30 years was 9.74%, with the highest rate occurring in 1981 at 16.63% and the low being 2003 at 5.82%. \

When you combine that with the amount of product on the market, be it new construction or re-sale homes this is a "Target Rich Environment". I have never, that's not almost never, or hardly ever, but NEVER seen Builders and Re-sellers offering so much to begin with and being willing to negotiate so much to sell a home in all the time I've been selling real estate. Everything from swimming pools being offered by builders to closing costs and drastic price reductions from re-sellers.

Buyers can pick from a historical high water mark of homes on the market. Buyers hold the keys to the city today, just the same way Sellers held the keys in 2004, 2005, and just like then, things will change.

The key is buying low and selling high...just ask Eddie Murphy and Dan Akroid...the peak on selling came in 04, 05. The people that bought their homes prior to the spike picked up an investment that they lived in for several years, then SOLD it when the time was right. So if you are a seller, is this the perfect time to sell, no. If however you are going to sell and move up, you are going to be able to take advantage of being a buyer, the same way the buyer that purchased your home took advantage of the buyers market when purchasing yours.

Ideally what you want to do right now, if you have the means, is to pick up some investment property. Property that already has a tenant in it, and yes they are very easy to find right now. Your tenant pays most if not all of the mortgage on the property, and as the market increases in value, which it will eventually do, you get to take advantage of the increase in market value, as well as the equity created by paying down the principle...

Another variation is to buy a move up home and rent the home you are currently in. Again, put a tenant into your home to pay all or most of the mortgage, and move up into a new home.

Or if you are buying without having to sell or rent out another property, this is YOUR TIME!!!

With any of these scenario's you have to be realistic about what you can afford and with income property you have to count on the fact that when tenants move out, you'll have to cover a vacant period as well as getting the property back to pristine condition for the next tenant. Which is why its important to make sure you've got a good tenant to begin with, that doesn't have a history of taking a chain saw to the kitchen cabinets, or cooking up meth in the bathtub...property management companies help here, but require a piece of the monthly rent...usually 10%, but that is negotiable with the management company.

The point is this is not a 'HORRIBLE MARKET"...its awesome if you are buying, its difficult if you are selling, but with interest rates still well below historical averages, more buyers can "buy" those tough to sell homes, and buyers are in hog heaven!!!!

Its kinda like when the salmon run...kinda sucks for the salmon but its a great time for the bears...and hey not all the salmon get gobbled before getting to "do their thing"

What to do when your mortgage adjustments breaks your budget

Unfortunately, this scenario is popping up more and more. Buyers had either speculated that they would have had their home sold before this happened, or they'd be able to re-finance in a position where the mortgage was no longer in the position of needing Private Mortgage Insurance or a less than 80% loan to value, or even worse, their financial situation has changed. With the market slow down and the interest rates coming back up and the lending industry tightening their reins, home owners are finding themselves more and more in the position of being strangled by their homes.

The problem is also made worse by the fact that no one really wants to acknowledge they are in trouble until its things are horribly wrong. I have received several calls recently asking "How fast can you sell my house?" My answer, "2 days if you want to sell it for belly button lint and candy wrappers..." Usually most home owners regardless of their situation still see their home as being worth what the highest priced comparable of their home sold for. In a slow market like ours, that doesn't equate to a "quick sale". Also, if a homeowner has only been in their home for a short time they may be upside down in their home, (owing more than the home is worth), and if re-financing is not an option or doesn't fix the problem, then selling the home for less than it is owed becomes the only option, either by paying off the bank the extra owed amount or by proving an inability to pay off that amount and getting the lending institution to accept a "short sale".

The first step is to find out what your home is really worth, not what you think it's worth or what your neighbor Bob and Susan sold theirs for 6 months ago, but a realistic look at its value under current market conditions. This can be achieved by getting an appraisal, usually around $350 to $400, or get a real estate professional to provide you with a comparative market analysis. This requires a real look at the home, not a computerized average found on one of the many Internet sites.

Next you need to estimate what your closing costs would be based on the value obtained by either of the aforementioned processes. If you've used a Realtor to create your market analysis ask them also for an estimated net sheet based on a sale at appraised value, as well as at values $10,000 lower than appraised value. These costs will vary market to market, but in Nevada in addition to brokers fees the costs you will be expected to pay are

1/2 of the escrow fee

Title insurance

re conveyance fee to pay off existing loans

if you are in a Home Owners Association, there will be document and transfer fees

NV transfer tax, $5.1 per thousand dollars of sold value ($300,000 sales price, $5.1 X 300)

County recording fees

Once these have been tallied up, along with the amount currently owed you will find out how much you will either have to pay to get out from under the mortgage and start over, or how short the sale will be, or if a new financing option may be a better choice.

If you are in a worst case scenario, and refinancing is not an option, nor is there any money for paying off the short amount, a "short sale" may be the only way to go besides foreclosure.

Short sales are a better option for lending institutions, because in the long run, it keeps the property of their books (REO) and it is much quicker...sort of like ripping off the band-aid quick. This doesn't mean that the lender is going to be "happy about it". They are going to want to make sure you aren't able to cough up the remaining money, which means proving your inability to make the payments. If you show a $1,000 a month payment for a new 911 Turbo, they may want you to get rid of the car payment and give it to them instead...short sales are not an easy way out...nor are they quick fixes. They should be considered a last option before the "big ugly" foreclosure....

The steps to getting a lender on-board quickly is to contact the lender, or have your Realtor, with a signed notice of permission to discuss your financial information contact the lending institutions short sale department. Find out what they need to see to approve a short sale. If you have more than one loan this will be required of each lender.

Next get your financial information together, along with the reasons why you are no longer able to make your payments. If this is due to an exploding interest rate, it may make more sense for the lending institution to renegotiate a lower rate rather than risking the possibility of a short sale or foreclosure. The lending institution is going to want to see all of your assets and obligations, if you own a cabin in Big Bear, they are most likely going to suggest you sell it to pay what you owe, again, this is not an easy way out. Having this available for the institutions instead of waiting to see what they "really require" will save time. This process can take between 1 and 6 months, so have as much information readily available as is possible.

At this point, if your home isn't already on the market, the institution may require you try to sell it at a price high enough to cover costs, they may want to negotiate with the listing agent for a lower commission. This may happen again once an offer is presented on the home that is less than what is owed. The lender doesn't have to agree to a short sale, so if you receive an offer that is less than what you owe and have to pay it off, make sure you've listed in your counter offer that "bank approval" is needed for the sale. Otherwise the buyer can still enforce the contract regardless of what it will do to you.

Other things to consider is the tax burden. The IRS sees the amount you've been forgiven on your debt as taxable income, (ya I know, don't shoot the messenger) so if you have $50,000 in debt forgiven, Uncle Sam is going to squeeze you for income tax on that 50 grand.

The lender may require you to sign a promissory not to make payments on the remaining debt as well. This at least gets you out from having to pay the IRS...

This also may be a time that the lender looks at the information originally submitted for the loan in the first place. If they find fraudulent information was provided to obtain the original financing they may take a good hard look at whether or not you participated in loan fraud.

The most important thing in all of this is to be realistic in the first place. Don't count on future market conditions to enable you to make payments. If you see your situation is about to change for the worse, re-work your budget to make sure you can make your payments. If you aren't going to be able to, start the selling or re-financing process as soon as possible.

Talk to professionals about all of this as well. You wouldn't expect to be able to jump into a race car and drive it as well as someone that races every day would you? Talk to Realtors, Lenders and Tax professionals that run this race on a daily basis...it'll keep you off the wall.