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Subprime fallout may hurt homeownership
2007-03-11 17:56:00
With the increasing defaults of Subprime Adjustable Rate Mortgages, (Subprime is a loan that does not meet the quality of what is called A paper, in general usually a middle credit score of 620 or more) many lenders are leaving that side of the business and it seems like the federal regulations for these types of loans are going to tighten. For example, New Century a long time subprime lenders has stopped taking new loan applications because of the large increase in defaults. According to Reuters, they may soon seek bankruptcy protection. In addition, more than 20 subprime lenders have quit lending or gone bankrupt in the past year or so. Even large lenders like Countrywide recently halted their no-money down programs. Now borrowers are required to have at leat 5% equity in their homes.So why do I mention all of this? Well, because of these recent occurrences, potential homebuyers that may have lower credit, but have every intention in making their mortgage payment may be pushed
Read more: Subprime fallout , may hurt

Going to see an Investment Property
2007-03-09 15:45:00
I am going to see two investment properties in the Washington, DC area next week. One is a 4-unit building, with 3 - 2 bedrooms, and 1 - 1 bedroom. Of course it is listed way too high (mid $600,000). The other is a 5-unit building, with 5 - 2 bedroom units and parking for 5. Also priced in the mid $600s, but seems to have more potential. I am going to videotape each visit of these multi-units with my realtor. Then I will basically make a short video documentary of how I pick and evaluate rental properties and arrive at a reasonable offer price, step by step. The offers will be presented and I will let everyone know the outcome of the offers. I anticipate this video will be done by the end of next week sometime. I will use some of the principles covered in my previous Real Wealth Through Rental Properties posting. I will post a clip here on my Financial Freedom Through Real Estate blog site and the whole video will be available on my Wealth Building Through Real Estate website
Read more: Going

Mistake Buyers Make around Settlement Time(audio)
2007-03-07 05:40:00
Here is a link to part of an audio interview that I had with an owner of a reputable settlement company. We are discussing the mistakes people make before, during, and after settlement. Click here to listen to the audio. You can log onto HouseWealthy.com to listen to the whole interview (requires a quick registration).
Read more: Mistake , Buyers , Settlement

Getting Money Out of a 1031 Exchange
2007-03-07 02:49:00
As many investors know. A 1031 exchange is a way to roll the gains of selling one investment property into another investment property of "like-kind". This method allows the investor to defer paying capital gains on the profits from selling the investment property. Taxes are not paid on the gains until the the investment property is sold without rolling it into another investment and the investor opts to take the proceeds as cash. Well, what if you need to get access to this money, but don't want to pay taxes on it. There is a real estate loophole that allows you to take out a loan on the property that you receive after a 1031 exchange. In other words, do the 1031 exchange, get the new property, and then refinance. This will allow you to access the gains without immediately paying taxes on it. Of course once this property is sold and the proceeds taken as cash, you will have to pay taxes on the money taken out during the refinance. Please consult your tax professional about t
Read more: Money , Exchange , Getting Money

First-Time Homebuyers ... get those deals
2007-03-05 15:00:00
Now seems like the perfect time for the first-time buyer to step up to the plate and take advantage of the cooling market. A cooling market does not mean a bad market, just a return to a more normal market. Houses will continue to be sold …. sellers will sell, buyers will buy, and homes will appreciate over time. All of this will just happen at a more normal pace as compared to the 2000 – 2005 time periods. A normal market means that home buyers have more time to look around, compare homes, and make informed decisions. This was a non-existent phenomenon during the boom years. Many first-time buyers could not react quick enough to secure the house of their dreams. The quickened pace of home sales did not allow inexperienced first-time buyers to comfortably evaluate potential homes and make a decision in their best interest. Now sellers are giving more incentives and concessions to potential buyers. In addition, many first-time buyer and income-based programs are available
Read more: First , Homebuyers

How to afford a Home with little money
2007-03-02 01:35:00
I run across many first-time homebuyers that have trouble coming up with money for closing costs or downpayment. This seems to be a hurdle on the road to homeownership for many people. But with decent credit (600 or above) you can qualify for many community programs that allow 100% financing at competitive interest rates.In addition to these programs there are a few tricks and techniques that one may consider when making a purchase.Technique 1:If you are limited to only 3% closing help from the seller (because of a particular loan program), consider asking the seller to pay for all state transfer and recordation taxes. This is customarily split between the buyer and seller in most states, but you can ask the seller to pay for the whole amount. This is usually not considered "closing help" by lenders. This can save the borrower an additional 1% of the total loan amount.Technique 2:If you secure a loan that is 100% financed, it is not necessary to purchase Owner's Title Insurance a
Read more: afford , little , little money

Tax Liens as a Safe Investing Option
2007-03-01 17:11:00
Most of you have heard about the tax lien sales either on T.V., books, or through friends. For those who may have cold feet about taking the jump into full-fledge real estate investing, tax liens may be a viable option. Tax liens are a more conservative, methodical approach to real estate investing. If done right, it is considered one of the least risky ways to invest in real estate. There are about $7.6 billion dollars in delinquent property taxes created each year according to TaxLiens .com. There are thousands of counties in the US that sell tax liens every year. Approximately 31 states currently issue tax liens every year according to the site. If you are considering this investment option, be sure to conduct the proper research. This will ensure you a good return (around 10% – 15% per year) with minimal risk. With tax lien investing you are partnering with local governments to create above average gains on your money. The liens can be purchased for hundreds to tens of t
Read more: Investing

Interest Rates Affect Affordability the Most
2007-02-28 22:54:00
Now that the heated market is softening, many buyers seem to be waiting on the sidelines for the once high prices to decline even more. Their reasoning is that a lower price will ease the road to homeownership. Currently, prices have decrease and seem to be stabilizing. But, the true factor that affects affordability is interest rates, which is the most powerful component of the home-buying process. A drop in interest rates has a far greater affect on monthly mortgage payments than a drop in home prices. So, if home prices do happen to drop and if interest rates rise at the same time, that once affordable home will quickly become unaffordable. For example, a household with an annual income of $100,000 can afford a $450,000 home at an interest rate of 5.63%. With an increased interest rate of 6.7% (approximately 1% higher), that same family can only afford a home priced at about $399,411. The only factor that changed in this equation was the interest rate. This change in intere
Read more: Interest , Rates , Affect , Affordability , Interest Rates

Certain Investment Ideas may be Illegal
2007-02-27 15:48:00
We can all agree that there are many ways to make money in real estate. You can buy a residential property and rent it out for a steady monthly income. You can purchase a commercial property and lease the space out the businesses for many years. On the other hand, you can acquire a fixer-upper, make some repairs, and resell it for a profit, or acquire a vacation property and rent it by the week to short-term visitors. Well as you embark on your journey of real estate investing, some moneymaking ideas may not be allowed by the local or county jurisdiction that the property resides in.For example, early in my real estate investing career I acquired a large property with many bedrooms and bathrooms. It was formerly used as convent. At the time, it was a good deal, so I made a rush decision to purchase the house. I dreamed of the cash flow I would receive from renting it to students on a per room basis. So, I proceeded without researching the state and county laws until after the p


Real Wealth Through Rental Properties
2007-02-08 00:32:00
Since the market has cooled in many cities, many new investors are starting to panic because they are worried about how to now make money in real estate. They can no longer buy a property, slapped on some paint, and sell it six months later for a $50,000 profit. These investors are used to making money through quick appreciation or asset growth. This is really a secondary means of making money in real estate. The recent boom has given the false impression that property prices always go up. The key to building true wealth in real estate is through buying and holding. Good and consistent tenants can create wealth for you by paying for mortgage, insurance, taxes, and other fees through rental payments. The power of leverage also allows you to make huge returns by using the banks money. If you put $10,000 down on a $200,000 home, with 5% yearly appreciation, you will have 100% yearly growth of the money that you actually invested. With real estate you have many vehicles for creati
Read more: Wealth , Rental , Properties

Promissory Notes as a Real Estate Investment Option
2007-02-07 14:21:00
In this slowing real estate market a promissory note may be a good alternative for investing in properties and creating a steady stream of income. This is similar to offering someone a 2nd trust or “piggy-back” loan that accompanies a 1st trust or primary loan. This could also be a good option for sellers that may have a potential purchaser that needs a 2nd loan to complete the transaction. This scenario will only work with sellers that have a good amount of equity in their homes. The seller will need to pay off their own mortgage and have enough equity to offer a 2nd trust and maybe pocket some profits.The promissory note process is not very difficult and I have actually done it myself. You can get sample promissory notes on the web and then have a real estate attorney look it over and fine-tune it for your particular needs. If done right, this vehicle can provide you with years of constant monthly income. For those of you who currently have mortgages, do you often look at
Read more: Notes , Estate , Real Estate , Real Estate Investment

PMI is tax-deductible ..... for now ......
2007-02-06 06:29:00
A $40 billion tax bill signed in December introduced a long awaited tax break for homeowners - tax-deductibility of private mortgage insurance, also known as PMI. This deduction is only available to homeowners with adjusted gross income less than $110,000 ($55,000 for individuals) and who itemize their deductions. The new PMI deduction will only apply to mortgage insurance contracts issued in 2007. Congress is supposed to evaluate the law at the end of the year for a possible extension. Homebuyers may no longer have to opt for the popular 80/20 or 80/10 loans because PMI is now tax deductible. This tax deductibility makes loans with PMI cheaper than the 80/20 or 80/10 alternatives. Homeowners with PMI will now be able to deduct it from their incomes and pay less in taxes each year. It will be tough to justify going for a 80/10 or 80/20 loan if this law is made permanent. It is best to consult a good tax advisor to determine if a PMI loan is good for you.


2007 Foreclosures
2007-02-02 15:12:00
It is predicted that 2007 will be a big year for foreclosure sales. Nationwide foreclosures were up 35 percent from December 2005 to December 2006. This is according to RealtyTrac.com. The biggest culprits for this prediction of increased foreclosures are the combination of resetting ARMs and slowing home sales. Many Adjustable Rate Mortgages (ARMs) have reset in 2006 and will continue to reset in 2007. This is forcing homeowners with these loans to pay increasingly higher mortgage payments because of the ARMs’ increasing interest rate. The slowing real estate market makes it more difficult for these owners to sell their homes before foreclosure sets in. Many of these homeowners are even unable to refinance into new ARMs because of credit issues, lack of equity, or an inability to qualify for today’s higher ARM rates.This is creating new opportunities for foreclosure investors, but you will definitely need to do your research. The foreclosure market is very different from th
Read more: Foreclosures

Spring will probably be a Buyer's Market
2007-01-30 20:32:00
We have just got out of the month of December, which is not the best month to sell a home. In actuality, it is the best month to buy a home because most sellers are more desperate and buyer traffic grinds down to a trickle. This spring will increase the sales chances, but it is predicted to still be a buyer’s market. The problem is that there is currently an abundance of unsold inventory on the market and the spring usually brings an additional influx of homes on the market. Even if buyer interest increases, it probably will not be enough to satisfy the current amount of homes on the market, let alone the predicted increase of homes to hit the market. Sales chances are calculated by dividing a month’s sales figures by the inventory on the last day of the month, resulting in a percentage. A number less than 20 percent indicates a buyer’s market. Currently, there is just too much surplus inventory. In addition, with all of the current homeowners sitting on piles of equity, the
Read more: Spring , Buyer , Market

How to Evaluate an Investment Property - Part I
2007-03-13 21:29:00
I took a look at the 5 - 2 bedroom, 1 bathroom, multiunit in the Washington, D.C. area today. Just to recap, it has a list price of about $650,000. The rent is currently about $950 per unit and the onsite manager pays only $600. That is a grand total of $4400 per month. I will be getting the income and expenses statements for this property and will do a full analysis so I can come up with a offer that will actually give me a decent cashflow (approx. $300 - $800 per month) if possible. It will definitely be less than the list price of $650,000, which is way too high. It is a nice looking building.Here is the front of the building:Here is the back of the building:Here is the garage:Here is the backyard:The garage has the potential for being rented once fixed up. The tenants pay for their gas, and electric. The landlord pays for the heat. This property is close to transportation and has good potential ..... at the right price of course. I will have a summary of my evaluation and


Hold each Investment Property as an LLC
2007-03-15 19:07:00
Many wonder if it is necessary to hold or transfer their investment properties in an LLC. I think it is not only necessary, but you should have a separate LLC for EACH investment property. This is especially true if you have multiple apartment buildings with many units. The whole idea is to protect your personal assets from potential lawsuits from tenants, etc. If you hold all of your investment properties under your name, then that leaves you open for getting sued for your personal assets (bank accounts, principal residences, etc). This can be devastating for most and I have seen a few people get burned this way. I don't even think it is a good idea to have all of your investment properties under one LLC. The problem with this is if someone sues you because of an incident at Apartment Building #1, they can also go after the equity and assets of Apartment Building #5 if they are under the same LLC. You will be personally protected, but you open yourself to potential liability


How to Evaluate an Investment Property - Part II
2007-03-16 20:23:00
I have completed my video of the investment property that I visited earlier in the week. Below is a picture of the front of the property:I ran a spreadsheet that took into account an offer of $550,000, a fixed 30 yr mortgage, different types of possible 2nd mortgages, the monthly costs of misc. expenses, heating, insurance, taxes, and water. I then compared that cost to the current rents and the future rents. Here is a link to the excel spreadsheet with a summary of the basic analysis: Rental Property Analysis Spreadsheet. I go into full detail of the rental analysis on my website HouseWealthy.com.Here is a link to a clip of the Real-life Evaluation of an Investment Property. video. The full video analysis is available on my Build Wealth Through Real Estate website. In summary, I plan to make an offer on this property that will be in the mid to upper $500k range. I will let everyone know if my offer is accepted :). Hopefully this video will help with your plans to acquire income


The "Make Sense" Interest-Only Loan
2007-03-19 15:13:00
With all of the fallout of the subprime market and the bad press on ARMs, Option Arms, and Interest -Only loans, it seems like the only good option nowadays is the traditional 30-yr fixed principal and interest mortgage. Rates are still at relatively low levels hovering around the 6% mark. It is true that a 30 yr fixed principal and interest mortgage is the safest bet, but I think homebuyers should also give some thought to the 10 year interest-only 30 year fixed mortgage. This is one of the only loans available that gives you a fixed-rate with an option to make interest-only payments when you want to. How is that? Well, an interest-only loan does not restrict you to making only interest payments. You can make payments to principal at anytime.For example:A $400,000 mortgage with a 6% interest rate, yields a principal and interest payment of: $2.398.20 per month. The interest only payment would be: $2,000.00In this example, a homeowner could acquire a 30 yr fixed mortgage, with a
Read more: Sense

Importance of Rental Property Depreciation
2007-03-21 05:35:00
A common mistake among real estate investors (I am guilty of this too, when I first started investing) is that they often do not deduct depreciation on their investment properties when doing their taxes. The government allows you to take a depreciation deduction each year on your investment properties. There is a schedule that tells you how much your property has "gone down" in value each year. The idea is that property gradually degrades over time, so its value also decreases over time. In general this is true of furniture, television, vehicles, etc. But the same cannot be said for real estate. Real estate has a "perceived" value that usually gradually increases over time. But good old Uncle Sam has provided this nice perk for real estate investors. Even though we know property that is bought right and maintained can drastically increase in value, the government allows us to take a yearly tax deduction for a reduction in the property value. There are tables provided by the IR
Read more: Rental

Strategy for High Equity Rental Properties
2007-03-20 06:45:00
This is probably a tax law that many of you know already, but I feel compelled to state it just in case there are a few who are unaware of its benefits. We all know about the tax law that states if you live in your primary residence for two year out of the last five years, you can keep up to $250,000 from the profits from the sale as an individual or $500,000 for a married couple. The two years does not have to be consecutive. It could be one year in the beginning of the five years and one year at the end of the five years, does not matter. Well, if you have a investment home (single-family) that you have held for a while and has greatly appreciated, you can apply the same rule to the investment home. Normally, you would have to either pay tax on capital gains or roll the gain into another property through a 1031 exchange. This option would be to move into the investment property for two years and then take the gain out tax-free up to the applicable limits. Note, that you will still ha
Read more: Rental , Strategy , Equity , Properties

Use the Home Inspection To Your Advantage
2007-03-22 15:20:00
While many real estate professionals have experienced a slowing in business, there is one group that has seen an upturn .... the home inspector. While we had the torrid pace of home sales during the 2000 - 2005 real estate boom, the home inspector was relatively left out in the cold. If you presented a contract with a home inspection in many markets, the seller would chuckle as he or she dropped your contract in the trash. Even buyers' agents would urged their clients not to attach home inspections to their contracts. Most of a home inspectors business was based on "information-only" purposes inspections. Fast forward a couple of years and now the home inspector is back. The new market has made the home inspection customary and they are becoming an excellent negotiating tool for buyers. Nowadays, buyers are using the home inspection to gain leverage. It is used to either reduce the seller's price after the contract is ratified or to get more seller concessions. For about $40
Read more: Inspection , Advantage , Home Inspection

How Much Did The Owner Pay?
2007-03-26 16:34:00
With spring upon us, there will be an increase real estate market activity. Sellers will definitely be selling ..... and hopefully buyers will be buying :). But what are the best strategies for getting the best deal out there. Well today, I am on the buyer's side ... sorry sellers ;). One technique that I use when negotiating an offer price is to find out what the current owner paid for their property. The days of $100,000 appreciation per year are gone, so owners are now more willing to negotiate. But what if the owner paid $500,000 for that great property in 2006 and now is selling it for $525,000 and it is really worth $475,000? Chances are he or she will not have much if any negotiation room. If a buyer offers less than that .... lets say $500,000, he or she may be wasting their time. But what if the owner paid $115,000 for that property in 1997 and now is selling it for $500,000 and it has been on the market for 6 months? In this instance, an offer of $425,000 has a gre
Read more: Owner

Update: How to Evaluate an Investment Property
2007-03-28 07:26:00
Well .... I have submitted my offer for the investment rental property covered in the previous blog posts How to Evaluate an Investment Property I & II. I believe it was a competitive offer and will now wait to see what happens. It still seems like sellers are holding on to the the notion that they can get the astronomical prices of 2005. In my particular situation, I believe the seller may be misguided by following facts:1. In 2005, a similar building in the neighborhood sold in the $600ks.2. In 2006, another building sold in the $800ks.The problem with this is that the previous owners marketed the properties as condo conversion candidates. This was really big in the Washington DC area in 2005 and early 2006. Sellers more or less sold the pipe dream that you could buy a building for $750k, renovate, get the proper permits and licenses, and then resell each unit for $275k each. This may have been true in 2003 and 2004 when building were acquired at reasonable costs. But in 2005 and 200
Read more: Update

Beware of the "Trigger List"
2007-03-30 18:54:00
Have you ever applied for a mortgage and all of a sudden get a swarm of calls from other lenders the next day promising to give you a better deal? This phenomenom occurs because the credit bureaus (Equifax, Experian, and Transunion) sell your information for a pretty penny and other lenders can buy this information on a daily basis. With the cooling of the hot real estate market, many lenders are investing heavily in this type of lead generation for business. It is very attractive to lenders because for the most part, all of the leads are currently in the market for a mortgage. The "lead" is generated when your current lender pulls your credit. This is one of the most sought after lead and the credit bureaus charge a premium for them. As a consumer, you are open to shop around as much as possible. Just be carefully of the "bait and switch". The competing lender can dangle falsely discounted rates and terms just to gain your business. After weeks of going through the process, t
Read more: Beware

Seek an "Educational" Mortgage Broker
2007-04-02 02:38:00
There has been plenty of news on the demise of the subprime market and how certain unscrupulous loan officers/lenders preyed on the following individuals:1. Elderly2. African-American3. Low or Fixed Income4. WomenIn my opinion, these loan officers/lenders are a disgrace to the business and make it harder for the honest ones that truly have a passion for real estate and helping others. The best piece of advice that I can offer a consumer is too seek a mortgage broker, loan officer, or lender that is dedicated to educating you on the product that they are selling you. If it seems like they are too eager to close the deal quickly or have a sudden sense of urgency, then they may not have your best interest at heart. A good mortgage broker will take the time to thoroughly explain anything that you may not understand. They should also offer a solid contingency plan if you acquire a short-term ARM or other so-called "exotic" mortgage product. A mortgage can be key to systematically build
Read more: Educational , Mortgage , Broker

Subprime Woes Affect Us All
2007-04-05 02:48:00
We all know that the woes of the subprime market has now made it difficult for a good number of the population to obtain mortgages. Most of the 100%, no money down, no credit needed financing are now disappearing. Those of us with good credit may be thinking that "this won't affect me". Or maybe you are laughing at the people that took these loans and are now suffering the consequences of 2 year ARMs that are increasing by over 3% in interest rate. To make matters worse, these homeowners can't even refinance their homes because similar subprime loans are no longer available. In addition, their credit is not good enough to go "prime", so for many the only option is foreclosure. Well, the demise of the subprime market has some ripple effects on the rest of the market. For one, the tightening of the subprime standards has also resulted in tightening of prime standards. So even if you have a 720 credit score, most lenders are not offering 100% financing in any form. They are also padding
Read more: Subprime , Affect

Professional Stagers Help Home Sales
2007-04-09 20:31:00
I recently commented on the increase in business for the home inspector in this buyer's real estate market. The professional home stager is another real estate business that is seeing a resurgence in activity. This Spring will see an increase in homes on the market and each seller needs to get every competitive advantage available to them. The setup, look, feel, furniture, smell, and lighting of your home could have a more positive effect on a potential transaction than a lower sales price. Homes that are cluttered with children's toys and/or pet odors or hair may be hurting their chances of getting an interested buyer. With so much inventory on the market, it is easy for a buyer to move on to the next property. Sellers may consider hiring an accredited professional stager (ASP) who can help them direct a potential buyer's attention to the highlights of the home. For an average cost of less than $2,000, a home stager will make sure items that could be seen as objectionable to potent
Read more: Sales

MyCommunity Mortgage: A Subprime Alternative
2007-04-11 21:07:00
MyCommunity Mortgage s: which are sponsored by Fannie Mae and is designed to assist low and moderate income families, public service employees, and disabled people to realize their dream of owning an affordable home. This program allows for 100% financing and little to no money required into the transaction for those who qualify. I can't stress enough how great this Fannie Mae sponsored program is. It allows certain borrowers to qualify for a home with no money down and less than perfect credit. It is a great alternative to some of the subprime loans that are now disappearing from the marketplace. The best feature of this loan program is that it offers a low interest rate that is fixed over 30 or 40 years, not just 2 - 3 years like the average subprime mortgage. Most subprime borrowers aren't getting in trouble because of their initial interest rate. Most of the trouble comes when these short-term ARMs reset and payments skyrocket by $300-$500 per month. A sensible borrower can
Read more: Subprime , Alternative

Possible ARM Swapping????
2007-04-21 23:06:00
I recently read an article on Money Magazine's website that addressed the possibility of the government and lenders allowing some borrowers with ARMs to swap them out for fixed rate mortgages. Speakers at a Congressional hearing of the House Financial Services Committe called for restructuring ARM loans to help solve the subprime crisis. A Congresswoman from Ohio (which apparently leads the nation in the foreclosure rate) recommended the following three-prong approach:- Establish a rescue fund for short-term problems casued by illness, layoffs, or other one-time events.- Create a bond fund to pay for switching borrowers out of unaffordable ARMs.- Refinance loans for victims of predatory lending.These measures also calls for lenders to agree to modify the terms of existing loans to prevent the higher costs of foreclosing on properties. This suggestion may work because it costs more to foreclose on a property than to accept lower returns on existing investments. According to the arti
Read more: Possible

This Week's Carnival Of Real Estate Investing
2007-04-30 16:30:00
This is my first time hosting the Carnival of Real Estate Investing and I am pretty excited to be participating. I went to the Penn Relays in Philadelphia this weekend to watch some of the best Track and Field athletes compete in sprints, field events, and distance running. As I watched the events, I couldn't help but find a link between real estate investing and the races.I watched the sprints and noticed that the athletes trained to give a maximum effort for 10 - 45 seconds and then the event was over. This is similar to the real estate rehabber. They acquire a property, renovate it for 1 year or less and then try to sell for maximum profit.The field events showcased athletes that combined athletic ability with very specific technical skills. This is similar to the real estate investor that specializes in short sales or preforeclosures. They rely on learning specific techniques and approaches to create their success in real estate. The long distance runners train hard to incr
Read more: Real Estate

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