I have added an amazing new feature on my website and I urge you to check it out. I call it an "Interactive Map Search". With this new feature I offer, you can search for your next home by high resolution satellite image! Yes you read that right, you can now search for your next home by satellite image, or check to see how much the homes in your neighborhood are listed for. How cool is that? Just type in basic search criteria on the left and the satellite will automatically zoom in on the area you specify. Or scroll around the map by clicking and dragging your mouse around the map using your mouse wheel as a way to zoom in and out. Give the system a moment to calculate, and you will see icons of homes available now plotted accurately on the map! Once you locate a property that interests you, you can click on it and receive more detailed information, you can also click on Birds eye view on any of the particular properties to get a 360 degree look at the home via high resolution satellite imaging! I check my blog several times a day, so you if you have any questions or encounter any problems, just leave a comment on this post and I will address it for everyone. So go ahead and check it out now I am sure you will be impressed. Give it a try by clicking the link below. Happy house hunting!
Begin Searching!
OC Real Estate Agent News Headline
Thursday, June 26, 2008
Foreclosures, Short Sales Boost Existing-Home Sales
Sales of existing homes picked up 2 percent from April to May to an annual rate of 4.99 million units as the median home price for all housing types fell 6.3 percent from a year ago to $208,600, the National Association of Realtors report..
"Foreclosures and short sales appear to be a larger part of the market, particularly in California, and are creating a drag on current home prices." NAR Chief Economist Lawrence Yun said. In the West, the median home price was down 16 percent from a year ago, to $286,600. The median price slipped 2.4 percent in the Northeast, to $278,000; 4.3 percent in the South, to $175,000; and 0.7 percent in the Midwest, to $165,300.
While the rate of sales picked up nationwide from April to May, they were down 15.9 percent from a year ago, when homes were selling at an annual rate of 5.93 million units. Condos and co-op sales picked up 5.5 percent to a seasonally adjusted annual rate of 580,000 units, but were down 24.6 percent from a year ago. By region, existing-home sales were up 5.5 percent in the Midwest from April to May, 4.6 percent in the Northeast, and 2 percent in the West. Sales slipped 0.5 percent in the South.
More California homes sell in May, but at lower prices
A report released Wednesday by the California Association of Realtors showed that while home sales in the state rose in May from their year-ago level the median price of an existing home fell sharply.
The median price of an existing, single-family detached home in Orange County dropped 23.6 percent versus California as a whole which fell 35.3 percent between May 2007 and May 2008 -- from $635,000 to $485,000 in Orange County.
Sales of existing, single-family detached homes climbed to a seasonally adjusted annualized rate of 423,700, up 18.1 percent from the revised 358,640 sales pace recorded in May 2007. The sales figure represents what the total number of homes sold during 2008 would be if sales maintained the May pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
"Home sales exceeded 400,000 last month for the first time since early 2007," C.A.R. President William E. Brown said in a news release. "While this is a welcome sign for the market, it was due in part to the large share of distressed homes for sale in many parts of the state."
Please let us know where you think Orange County prices are heading - if further down, by how much more.
"Foreclosures and short sales appear to be a larger part of the market, particularly in California, and are creating a drag on current home prices." NAR Chief Economist Lawrence Yun said. In the West, the median home price was down 16 percent from a year ago, to $286,600. The median price slipped 2.4 percent in the Northeast, to $278,000; 4.3 percent in the South, to $175,000; and 0.7 percent in the Midwest, to $165,300.
While the rate of sales picked up nationwide from April to May, they were down 15.9 percent from a year ago, when homes were selling at an annual rate of 5.93 million units. Condos and co-op sales picked up 5.5 percent to a seasonally adjusted annual rate of 580,000 units, but were down 24.6 percent from a year ago. By region, existing-home sales were up 5.5 percent in the Midwest from April to May, 4.6 percent in the Northeast, and 2 percent in the West. Sales slipped 0.5 percent in the South.
More California homes sell in May, but at lower prices
A report released Wednesday by the California Association of Realtors showed that while home sales in the state rose in May from their year-ago level the median price of an existing home fell sharply.
The median price of an existing, single-family detached home in Orange County dropped 23.6 percent versus California as a whole which fell 35.3 percent between May 2007 and May 2008 -- from $635,000 to $485,000 in Orange County.
Sales of existing, single-family detached homes climbed to a seasonally adjusted annualized rate of 423,700, up 18.1 percent from the revised 358,640 sales pace recorded in May 2007. The sales figure represents what the total number of homes sold during 2008 would be if sales maintained the May pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
"Home sales exceeded 400,000 last month for the first time since early 2007," C.A.R. President William E. Brown said in a news release. "While this is a welcome sign for the market, it was due in part to the large share of distressed homes for sale in many parts of the state."
Please let us know where you think Orange County prices are heading - if further down, by how much more.
Wednesday, June 25, 2008
“Short Sale” Everyone Could Win On Home
By Tamara E. Holmes
If you can no longer make your mortgage payments and your home is now worth less than you owe on it, foreclosure may not be your only option.
A short sale, in real estate terms, is a sale of a house in which the sale price is less than what the owner still owes on the mortgage. It is a procedure sometimes agreed to be the lenders, who often would rather take a small loss than go through the lengthy and costly foreclosure process in which the lender allows the sale of a home for less than it is worth and forgives the rest of the note -- provides another alternative to homeowners.
While there are some significant negative consequences to a short sale, an ever-increasing number of properties are being advertised with that label, says Natalie Lohrenz, director of counseling for Consumer Credit Counseling Service of Orange County in Santa Ana, Calif.
"A lot of people in the last couple of years have just stretched themselves to the limit and you have people with mortgage payments where even when they got the mortgage, the payment was half their income or more," says Lohrenz. "Now that rates are adjusting, it's two-thirds or three-quarters of their income and it's just not possible."
Short sale: Win-win-win situation
The beauty of short sales is that they can be a win-win-win situation for seller, buyer and lender. Here's how:
• The seller gets out of the mortgage liability without facing bankruptcy.
• The buyer gets the home at a reduced price.
• The lender agrees to a loss it considers minimal without waiting through a foreclosure and being saddled with an unsalable property.
While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit from the process, as well.
"The lender benefits by not having to go through the protracted process of foreclosing on the borrower and then having to put the property on the market and go through the whole marketing process," says Stuart Wilson, a real estate agent with Paragon Real Estate Group in San Francisco.
A market saturated with foreclosures can cost lenders billions -- as much as $50,000 per foreclosure -- according to a study released earlier this year by the Joint Economic Committee.
Wilson, who has represented both buyers and sellers in short-sale deals, advises working with an agent who's familiar with short sales. He also suggests that buyers looking to negotiate a short-sale deal come armed with enough documentation to convince the lender that settling for the lower price is their best option.
"You'd better be armed with recent comparables that show unequivocally that the lender's price is out of line," says Wilson. "You can't do this with a cover letter or a conversation. It will need to be done with the kind of documentation that an appraiser would come up with.
"When you go into a short sale, you have an institutional lender and it is an anonymous entity," Wilson continues. "You don't get a chance to talk to these people, you don't know what their guidelines are, you don't know what their time frames are and you don't know if your contract will be approved in six weeks or six months. It's a real crapshoot."
Lenders are most concerned with the financial situations of the seller when they ultimately make their decisions. If a seller can handle the mortgage payment, there's no motivation for the lender to let the seller out of the mortgage at a lower price.
"A lot of lenders aren't even going to consider a short sale unless it seems like (the homeowner) is in financial distress," says Lohrenz.
Also, if the home has a second mortgage with another institution, a short sale is less likely to be approved since that second institution would have to agree to forfeit all or part of the money it's owed.
Last gasp only
While getting a lender to agree to a short sale may seem like an answer to the prayers of homeowners who want to unload a house, it's not a good move if you're merely looking to find a new place. It's generally a last-ditch effort when the only other option is foreclosure.
Should you go for a short sale? It depends on how deep a financial hole you're in and how likely it is you'll be able to overcome those financial difficulties.
A buyer's dream
For a buyer, a short sale is a boon since he or she is getting a property at a reduced price. However, the process of waiting for a lender to decide whether to agree to a short sale could make a lengthy home buying process even longer and more arduous.
"If they're just having a short-term problem -- short-term disability or maternity leave or layoffs, but they have good prospects to find something soon and they can weather the storm and hold onto the profit through that -- obviously they wouldn't want to think about a short sale," says Lohrenz.
"But if the choice is foreclosure or short sale, generally a short sale is going to be a better idea."
Before you think about asking your lender to consider a short sale, it would be a good idea to get your paperwork lined up.
Be ready to document your need and to show the lender you are serious about your situation, including a hardship letter (an honest explanation of your financial situation and how it occurred), pay stubs, bank statements, tax returns, an appraisal and documentation of your debts.
3 critical safeguards
If you're considering a short sale, experts advise you to take the following steps to meet potential negative consequences head-on.
Get it in writing. Make sure the lender agrees in writing that the short sale will absolve all debts.
"If they owe $300,000 on the house and the short sale is for $280,000, is there any possible way that the lender's going to come after them for the $20,000?" Lohrenz says. "Most lenders will put that in the agreement that they're not going to come after the deficiency."
Protect your credit rating. Ask the lender how it will report the short sale on your credit report.
"Most of the time, a short sale shows simply that a debt is satisfied," says Lohrenz. "But theoretically, a short sale could reflect on the credit report as 'settled for less than the full balance.'" Such a designation is a negative mark on your credit report, though it wouldn't hurt your credit as much as a foreclosure would.
Get professional tax advice. Short sales often have tax repercussions since lenders can claim the forgiven debt as income that they provided you.
If you can no longer make your mortgage payments and your home is now worth less than you owe on it, foreclosure may not be your only option.
A short sale, in real estate terms, is a sale of a house in which the sale price is less than what the owner still owes on the mortgage. It is a procedure sometimes agreed to be the lenders, who often would rather take a small loss than go through the lengthy and costly foreclosure process in which the lender allows the sale of a home for less than it is worth and forgives the rest of the note -- provides another alternative to homeowners.
While there are some significant negative consequences to a short sale, an ever-increasing number of properties are being advertised with that label, says Natalie Lohrenz, director of counseling for Consumer Credit Counseling Service of Orange County in Santa Ana, Calif.
"A lot of people in the last couple of years have just stretched themselves to the limit and you have people with mortgage payments where even when they got the mortgage, the payment was half their income or more," says Lohrenz. "Now that rates are adjusting, it's two-thirds or three-quarters of their income and it's just not possible."
Short sale: Win-win-win situation
The beauty of short sales is that they can be a win-win-win situation for seller, buyer and lender. Here's how:
• The seller gets out of the mortgage liability without facing bankruptcy.
• The buyer gets the home at a reduced price.
• The lender agrees to a loss it considers minimal without waiting through a foreclosure and being saddled with an unsalable property.
While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit from the process, as well.
"The lender benefits by not having to go through the protracted process of foreclosing on the borrower and then having to put the property on the market and go through the whole marketing process," says Stuart Wilson, a real estate agent with Paragon Real Estate Group in San Francisco.
A market saturated with foreclosures can cost lenders billions -- as much as $50,000 per foreclosure -- according to a study released earlier this year by the Joint Economic Committee.
Wilson, who has represented both buyers and sellers in short-sale deals, advises working with an agent who's familiar with short sales. He also suggests that buyers looking to negotiate a short-sale deal come armed with enough documentation to convince the lender that settling for the lower price is their best option.
"You'd better be armed with recent comparables that show unequivocally that the lender's price is out of line," says Wilson. "You can't do this with a cover letter or a conversation. It will need to be done with the kind of documentation that an appraiser would come up with.
"When you go into a short sale, you have an institutional lender and it is an anonymous entity," Wilson continues. "You don't get a chance to talk to these people, you don't know what their guidelines are, you don't know what their time frames are and you don't know if your contract will be approved in six weeks or six months. It's a real crapshoot."
Lenders are most concerned with the financial situations of the seller when they ultimately make their decisions. If a seller can handle the mortgage payment, there's no motivation for the lender to let the seller out of the mortgage at a lower price.
"A lot of lenders aren't even going to consider a short sale unless it seems like (the homeowner) is in financial distress," says Lohrenz.
Also, if the home has a second mortgage with another institution, a short sale is less likely to be approved since that second institution would have to agree to forfeit all or part of the money it's owed.
Last gasp only
While getting a lender to agree to a short sale may seem like an answer to the prayers of homeowners who want to unload a house, it's not a good move if you're merely looking to find a new place. It's generally a last-ditch effort when the only other option is foreclosure.
Should you go for a short sale? It depends on how deep a financial hole you're in and how likely it is you'll be able to overcome those financial difficulties.
A buyer's dream
For a buyer, a short sale is a boon since he or she is getting a property at a reduced price. However, the process of waiting for a lender to decide whether to agree to a short sale could make a lengthy home buying process even longer and more arduous.
"If they're just having a short-term problem -- short-term disability or maternity leave or layoffs, but they have good prospects to find something soon and they can weather the storm and hold onto the profit through that -- obviously they wouldn't want to think about a short sale," says Lohrenz.
"But if the choice is foreclosure or short sale, generally a short sale is going to be a better idea."
Before you think about asking your lender to consider a short sale, it would be a good idea to get your paperwork lined up.
Be ready to document your need and to show the lender you are serious about your situation, including a hardship letter (an honest explanation of your financial situation and how it occurred), pay stubs, bank statements, tax returns, an appraisal and documentation of your debts.
3 critical safeguards
If you're considering a short sale, experts advise you to take the following steps to meet potential negative consequences head-on.
Get it in writing. Make sure the lender agrees in writing that the short sale will absolve all debts.
"If they owe $300,000 on the house and the short sale is for $280,000, is there any possible way that the lender's going to come after them for the $20,000?" Lohrenz says. "Most lenders will put that in the agreement that they're not going to come after the deficiency."
Protect your credit rating. Ask the lender how it will report the short sale on your credit report.
"Most of the time, a short sale shows simply that a debt is satisfied," says Lohrenz. "But theoretically, a short sale could reflect on the credit report as 'settled for less than the full balance.'" Such a designation is a negative mark on your credit report, though it wouldn't hurt your credit as much as a foreclosure would.
Get professional tax advice. Short sales often have tax repercussions since lenders can claim the forgiven debt as income that they provided you.
Small Defects Become Big Turnoff for Home Buyers
10 must-fix areas of your home
By Ilyce R. Glink
One of the biggest mistakes home sellers make is listing a home with obvious, although small, problems.
Any house -- even a brand-new house -- needs fixing from time to time. It's just that buyers don't want to be reminded of this obvious truth when it comes time to plunk down their cash.
Most buyers would rather believe that their home is going to be fine, and for the money they're paying, they'd prefer to have a problem-free house.
As a seller, your top priority is to overcome any real or imagined obstacles buyers have. Fixing stuff that's broken and selling a home that looks like it's been impeccably maintained over the years is a good start.
Grab a pen and pad of paper and start by touring your home looking for things that need to be done. Perhaps your walls or trim need touching up with a fresh coat of paint. Or maybe you have a crack in a floor tile. Or, your wall clock needs a fresh set of batteries in order to display the correct time.
Check the bathrooms: cleaning or re grouting bathroom tile and fixtures will help make that room seem fresh and clean. Cracked window panes and ripped shades should be replaced before any agent or buyer walks through the door.
Not fixing broken items -- especially those that can be easily fixed -- sends a not-so-subtle message to the buyer that you don't care enough to get these things done. Also, when the home inspector comes through (which he or she inevitably will), you know these items will come up in the "need to do before I'll buy your house" list.
What should you fix? Anything that a prospective home buyer will think should be in working order on the day of sale, including:
§ All appliances, including air-conditioners, furnace, boiler and hot water heater. They don't have to be new, but everything should be in working order. Clean out lint from the dryer. Make sure the ice maker is working properly. Install new air filters in your heating and air-conditioning systems. Clean out the air-conditioning compressors. Make sure your humidifier is working properly.
§ All faucets. If it leaks or doesn't turn on correctly, repair or replace it.
§ All windows. If any window panes are cracked or don't open properly, fix or replace. And make sure to repair all screen doors and windows.
§ All doors. No creaking, no doors that open only partially, no cabinet doors that don't open at all. If the windows are painted shut, fix them so that they open properly.
§ Any exterior problems. Replace missing roof shingles, repair your gutter if it has come apart, and regrade landscaping away from the house if you've been finding puddles or wet walls in your basement. Clean out your gutters and downspouts.
§ Cracked or chipped paint. A fresh coat of white or off-white paint can help make your home seem bigger.
§ Peeling wallpaper. Get some wallpaper glue and make sure to get the air bubbles out when you press it to the wall.
§ Change the light bulbs. Make sure all light bulbs are working and swap out the burned-out bulbs. Houses are often too dark when buyers come through in the late afternoon or evening for a showing. Make sure every light you have has the brightest wattage possible, and that you turn on every light before a showing -- even during the day.
§ Carpet. If your wall-to-wall carpet has been pulled up in places, make sure it is tacked down firmly. And while you're at it, you might want to have your carpets cleaned and floors waxed before you sell.
§ Kitchen cabinets. Doors should open smoothly; hinges and knobs or pulls should be tightened.
As you're walking around the house, remember that a prospective buyer will be opening up every drawer and door. How well these items work communicates a lot about how you've taken care of the property. Making a good impression here will go a long way toward getting your home sold quickly -- and for more money.
If you can't manage to get your home in selling shape yourself, check the Web for local handyman- or handywoman-type businesses to help you out. Typically, you can hire these folks for an hourly or flat fee to take care of your "to do" list.
While you may spend a couple of hundred dollars having someone install a new light fixture, fixing creaky doors or changing light bulbs, the results should make the expenditure worthwhile.
By Ilyce R. Glink
One of the biggest mistakes home sellers make is listing a home with obvious, although small, problems.
Any house -- even a brand-new house -- needs fixing from time to time. It's just that buyers don't want to be reminded of this obvious truth when it comes time to plunk down their cash.
Most buyers would rather believe that their home is going to be fine, and for the money they're paying, they'd prefer to have a problem-free house.
As a seller, your top priority is to overcome any real or imagined obstacles buyers have. Fixing stuff that's broken and selling a home that looks like it's been impeccably maintained over the years is a good start.
Grab a pen and pad of paper and start by touring your home looking for things that need to be done. Perhaps your walls or trim need touching up with a fresh coat of paint. Or maybe you have a crack in a floor tile. Or, your wall clock needs a fresh set of batteries in order to display the correct time.
Check the bathrooms: cleaning or re grouting bathroom tile and fixtures will help make that room seem fresh and clean. Cracked window panes and ripped shades should be replaced before any agent or buyer walks through the door.
Not fixing broken items -- especially those that can be easily fixed -- sends a not-so-subtle message to the buyer that you don't care enough to get these things done. Also, when the home inspector comes through (which he or she inevitably will), you know these items will come up in the "need to do before I'll buy your house" list.
What should you fix? Anything that a prospective home buyer will think should be in working order on the day of sale, including:
§ All appliances, including air-conditioners, furnace, boiler and hot water heater. They don't have to be new, but everything should be in working order. Clean out lint from the dryer. Make sure the ice maker is working properly. Install new air filters in your heating and air-conditioning systems. Clean out the air-conditioning compressors. Make sure your humidifier is working properly.
§ All faucets. If it leaks or doesn't turn on correctly, repair or replace it.
§ All windows. If any window panes are cracked or don't open properly, fix or replace. And make sure to repair all screen doors and windows.
§ All doors. No creaking, no doors that open only partially, no cabinet doors that don't open at all. If the windows are painted shut, fix them so that they open properly.
§ Any exterior problems. Replace missing roof shingles, repair your gutter if it has come apart, and regrade landscaping away from the house if you've been finding puddles or wet walls in your basement. Clean out your gutters and downspouts.
§ Cracked or chipped paint. A fresh coat of white or off-white paint can help make your home seem bigger.
§ Peeling wallpaper. Get some wallpaper glue and make sure to get the air bubbles out when you press it to the wall.
§ Change the light bulbs. Make sure all light bulbs are working and swap out the burned-out bulbs. Houses are often too dark when buyers come through in the late afternoon or evening for a showing. Make sure every light you have has the brightest wattage possible, and that you turn on every light before a showing -- even during the day.
§ Carpet. If your wall-to-wall carpet has been pulled up in places, make sure it is tacked down firmly. And while you're at it, you might want to have your carpets cleaned and floors waxed before you sell.
§ Kitchen cabinets. Doors should open smoothly; hinges and knobs or pulls should be tightened.
As you're walking around the house, remember that a prospective buyer will be opening up every drawer and door. How well these items work communicates a lot about how you've taken care of the property. Making a good impression here will go a long way toward getting your home sold quickly -- and for more money.
If you can't manage to get your home in selling shape yourself, check the Web for local handyman- or handywoman-type businesses to help you out. Typically, you can hire these folks for an hourly or flat fee to take care of your "to do" list.
While you may spend a couple of hundred dollars having someone install a new light fixture, fixing creaky doors or changing light bulbs, the results should make the expenditure worthwhile.
Run the Numbers Before Buying an Investment Property
by Kimbrough Gray
People talk about running the numbers before buying an investment property, but what are the numbers and how do you get accurate numbers? Running the wrong numbers can make the difference of making $500 or losing $1000 per month. In this article, we will go through the costs and factors to consider making your investments successful.
RENTAL INCOME
Rental income is not as straightforward as it seems. Sometimes properties are under-rented and sometimes properties are over-rented, so be sure to find out the market rents when you consider a property. When we bought our first fourplex, we looked at comparable leases and realized our rents were too high, so instead of assuming we would continue to receive $3600 of rental income, we had to be realistic and assume it was more like $3200.
MORTGAGE INTEREST
A huge cost is mortgage interest. You should definitely sort out the details of your loan options and get an idea of current rates before running the numbers. It could make or break a deal. If you are getting a duplex or a house, the loans are generally similar to other home loan programs. Triplexes and fourplexes tend to have higher rates, and commercial is a whole other ballgame. One thing to consider is to put more down because the more you put down, the less your loan will be, which means less monthly interest to pay. Another consideration is the type of loan. We usually recommend people to get a fixed rate mortgage these days because the current ARM (adjustable rate mortgage) rates are not all that much lower than fixed rates.
Just get educated about the loan options and run the numbers with them. Oh, and do not just take advice from one mortgage person. The best way to get educated is to talk to a variety of mortgage brokers and banks to find your best solution; not all loan places have the same programs.
TAXES
People frequently use the taxes from the year when they purchased the property, assuming the taxes will stay the same. Taxes change every year. Taxes can go up drastically after a purchase. For example, an owner occupied property usually has tax breaks, so unless you intend to owner occupy too, your taxes will go up.
In addition, the county appraisal that your taxes are based on could go up after your purchase. For example, if you buy a property for 100,000 but the tax appraisal last year was for 50,000, don't count on it remaining at 50,000. In fact, I have seen cases where a year after a property was purchased the tax assessor increased the appraisal value to the purchase price. The safest approach is to look at the tax rate and the purchase price to determine your future taxes.
VACANCY COST
For some reason people tend to forget to take into account vacancy rate. Even when looking to invest in a desirable rental area, it's best to always take into account at least an 8-10% vacancy rate. Do some investigation, look at your market and find statistics on the average vacancy rate.
TENANT TURNOVER COST
We have personally found the biggest surprise to be the expense of tenant turnover. This includes advertising for a new tenant, cleaning, repainting, replacing carpet, etc. If you expect to have high tenant turnover, like next to a college campus, anticipate this to be a significant cost.
INSURANCE COST
Insurance on investment properties are typically higher than owner occupied, single family properties. So get an insurance quote on the property instead of basing your expected insurance off of the insurance bill for your house. You also should purchase liability insurance, which can be expensive.
MAINTENANCE COSTS
This is by far the most difficult number to estimate. It depends on the property, whether you fix some of the problems yourself or hire outside help, and random luck. So we can't give you a hard and fast number but we can look into different factors to take into account.
**Property Type - When you evaluate different properties remember to take into account the type of property. If it's brick you won't have to paint or worry about wood root. Decks need constant maintenance. A property with wood or concrete floors will be easier to clean and will not have to be replaced when a tenant moves out. Just think about the aspects of the property and their maintenance costs.
**Property Size - A smaller property is easier to maintain than a larger property. For instance, say there are two properties for sale for 200,000 and each have a combined rent of 2000. A property with 2 units and a total of 1000 square feet will be cheaper to maintain than a property with 6 units and 3000 square feet. The larger property will be more expensive to maintain when you are replacing the larger roof, painting the interior walls etc. More units mean more money spent on advertising, make-readies, and more appliances to repair.
**Property Location - Consider your proximity to the property. If you buy a property 30 miles away, over the course of a year you can spend a decent amount of gas money driving back and forth.
**Your personal management style - How often will you do maintenance work yourself vs. hiring help? For instance, when a unit needs painting will you paint the rooms or hire a painter? Hiring professionals is definitely more expensive, but you have to be realistic about how much you will personally do, especially if you are looking at many units.
UTILITY COSTS
Be sure to check what the tenants pay for and what the owner pays for. This includes all the utilities and lawn maintenance. In addition, there may be owner expenses like parking lot lights and trash bin service.
PROPERTY MANAGEMENT COSTS
If you are going to hire a property management company, definitely get their rates. We personally choose properties that we can manage ourselves.
SUMMING THE NUMBERS
Once you add all the numbers up, you often find the property has 0 cash flow or even negative cash flow. This doesn't necessarily mean you should not purchase the property. There are positive tax benefits to rental properties and depending on your situation, a property with technically 0 cash flow could still put more money in your pocket due to tax benefits. If you think the property is going to appreciate in the future, a zero or negative cash flow property could still be appealing.
The point here is that if you are buying a property with zero or negative cash flow, it's best to know beforehand instead of after the property has been purchased.
People talk about running the numbers before buying an investment property, but what are the numbers and how do you get accurate numbers? Running the wrong numbers can make the difference of making $500 or losing $1000 per month. In this article, we will go through the costs and factors to consider making your investments successful.
RENTAL INCOME
Rental income is not as straightforward as it seems. Sometimes properties are under-rented and sometimes properties are over-rented, so be sure to find out the market rents when you consider a property. When we bought our first fourplex, we looked at comparable leases and realized our rents were too high, so instead of assuming we would continue to receive $3600 of rental income, we had to be realistic and assume it was more like $3200.
MORTGAGE INTEREST
A huge cost is mortgage interest. You should definitely sort out the details of your loan options and get an idea of current rates before running the numbers. It could make or break a deal. If you are getting a duplex or a house, the loans are generally similar to other home loan programs. Triplexes and fourplexes tend to have higher rates, and commercial is a whole other ballgame. One thing to consider is to put more down because the more you put down, the less your loan will be, which means less monthly interest to pay. Another consideration is the type of loan. We usually recommend people to get a fixed rate mortgage these days because the current ARM (adjustable rate mortgage) rates are not all that much lower than fixed rates.
Just get educated about the loan options and run the numbers with them. Oh, and do not just take advice from one mortgage person. The best way to get educated is to talk to a variety of mortgage brokers and banks to find your best solution; not all loan places have the same programs.
TAXES
People frequently use the taxes from the year when they purchased the property, assuming the taxes will stay the same. Taxes change every year. Taxes can go up drastically after a purchase. For example, an owner occupied property usually has tax breaks, so unless you intend to owner occupy too, your taxes will go up.
In addition, the county appraisal that your taxes are based on could go up after your purchase. For example, if you buy a property for 100,000 but the tax appraisal last year was for 50,000, don't count on it remaining at 50,000. In fact, I have seen cases where a year after a property was purchased the tax assessor increased the appraisal value to the purchase price. The safest approach is to look at the tax rate and the purchase price to determine your future taxes.
VACANCY COST
For some reason people tend to forget to take into account vacancy rate. Even when looking to invest in a desirable rental area, it's best to always take into account at least an 8-10% vacancy rate. Do some investigation, look at your market and find statistics on the average vacancy rate.
TENANT TURNOVER COST
We have personally found the biggest surprise to be the expense of tenant turnover. This includes advertising for a new tenant, cleaning, repainting, replacing carpet, etc. If you expect to have high tenant turnover, like next to a college campus, anticipate this to be a significant cost.
INSURANCE COST
Insurance on investment properties are typically higher than owner occupied, single family properties. So get an insurance quote on the property instead of basing your expected insurance off of the insurance bill for your house. You also should purchase liability insurance, which can be expensive.
MAINTENANCE COSTS
This is by far the most difficult number to estimate. It depends on the property, whether you fix some of the problems yourself or hire outside help, and random luck. So we can't give you a hard and fast number but we can look into different factors to take into account.
**Property Type - When you evaluate different properties remember to take into account the type of property. If it's brick you won't have to paint or worry about wood root. Decks need constant maintenance. A property with wood or concrete floors will be easier to clean and will not have to be replaced when a tenant moves out. Just think about the aspects of the property and their maintenance costs.
**Property Size - A smaller property is easier to maintain than a larger property. For instance, say there are two properties for sale for 200,000 and each have a combined rent of 2000. A property with 2 units and a total of 1000 square feet will be cheaper to maintain than a property with 6 units and 3000 square feet. The larger property will be more expensive to maintain when you are replacing the larger roof, painting the interior walls etc. More units mean more money spent on advertising, make-readies, and more appliances to repair.
**Property Location - Consider your proximity to the property. If you buy a property 30 miles away, over the course of a year you can spend a decent amount of gas money driving back and forth.
**Your personal management style - How often will you do maintenance work yourself vs. hiring help? For instance, when a unit needs painting will you paint the rooms or hire a painter? Hiring professionals is definitely more expensive, but you have to be realistic about how much you will personally do, especially if you are looking at many units.
UTILITY COSTS
Be sure to check what the tenants pay for and what the owner pays for. This includes all the utilities and lawn maintenance. In addition, there may be owner expenses like parking lot lights and trash bin service.
PROPERTY MANAGEMENT COSTS
If you are going to hire a property management company, definitely get their rates. We personally choose properties that we can manage ourselves.
SUMMING THE NUMBERS
Once you add all the numbers up, you often find the property has 0 cash flow or even negative cash flow. This doesn't necessarily mean you should not purchase the property. There are positive tax benefits to rental properties and depending on your situation, a property with technically 0 cash flow could still put more money in your pocket due to tax benefits. If you think the property is going to appreciate in the future, a zero or negative cash flow property could still be appealing.
The point here is that if you are buying a property with zero or negative cash flow, it's best to know beforehand instead of after the property has been purchased.
How Do I Qualify For The Debt Relief Act?
By Patricia Leung
Note: This article is part 1 of 2 and focuses on the tax consequences of foreclosure / short sale for homeowners. Part 2 will discuss the tax consequence of foreclosure / short sale for real estate investors.
Today’s housing market downturn has caused many homeowners to either face foreclosure or short sale of their homes. As if losing all previously built-up equity and the initial down payment (if any) was not bad enough, homeowners may also be hit with unanticipated taxes.
The IRS historically considers loan forgiveness either partially or in full by a lender to be taxable income to the homeowner. This is known as cancellation of debt (COD) income. Situations that could give rise to COD income include foreclosures, deed in lieu of foreclosure, short sales, and a reduction in the loan principal and/or interest rate.
However, an individual who meets the criteria under the Mortgage Forgiveness Debt Relief Act of 2007 may exclude COD income from taxable income.
To qualify for the tax relief, the property must be the homeowner’s primary residence. This new Act does not apply to debt forgiveness on vacation homes, rental properties, credit card loans, student loans, or car loans. However, different types of tax relief may be available in these situations, which will be discussed in Part 2.
The tax relief applies only to the original purchase price plus costs of improvements of the homeowner’s principal residence. It does not apply to debt discharges for second mortgages, home equity loans, or cash taken out during a refinance, unless the loan proceeds were used to acquire, construct, or substantially improve the taxpayer’s home. The maximum amount of relief is generally limited to $2 million.
It is also important to note that if an individual has refinanced his mortgage loan, there could be additional tax and legal ramifications. He will now have two tax calculations: one for COD income and the other for capital gains income.
For example, Iam Brooke bought her house for $100K, then refinanced and took cash out when her property value went up. She did not use this fund to improve her house. Her refinanced loan is now $500K. With the market downturn, her house is now worth only $250K and she has to foreclose on her home.
Iam will have total COD income of $250K (loan balance of $500K less fair market value of $250K). Of this amount, only $100K may be excluded from taxable income under the new Act. The remaining $150K of COD income will be taxed at her ordinary income tax rate unless Iam declares bankruptcy or is insolvent, meaning her liabilities exceed her assets’ fair market value. This determination would be made at the time of the foreclosure or short sale occurrence.
Aside from COD income, Iam will also have capital gains income of $150K (fair market value of $250K less purchase price of $100K). Fortunately, the $150K capital gains may be excluded under IRC Section 121 home gain exclusion provision.
Since this article is focused on the tax ramifications, the legal consequences will not be discussed. Please consult a qualify real estate attorney for additional information.
Once a foreclosure or short sale transaction is completed, the lender will issue a Form 1099-C for cancellation of debt or Form 1099-A for foreclosure. Homeowners should pay special attention to the amount of debt forgiven and the fair market value listed for their home. Should the homeowner disagree with any of these amounts, he should contact the lender and request a corrected Form 1099.
To claim this tax relief, homeowners must attach a completed Form 982 to their federal income tax return. At the time of this writing, California has not adopted this new federal Act. However, a pending CA bill would conform to the federal Act. Unlike the federal Act, which is valid for debt forgiven from 2007 through 2009, the CA bill applies to debt relief in 2008 only.
It is highly recommended that homeowners who are undergoing or anticipating foreclosure or short sale seek professional help from qualified tax and legal advisors. This article is provided for informational purposes only and may not be relied upon as tax or legal advice.
Note: This article is part 1 of 2 and focuses on the tax consequences of foreclosure / short sale for homeowners. Part 2 will discuss the tax consequence of foreclosure / short sale for real estate investors.
Today’s housing market downturn has caused many homeowners to either face foreclosure or short sale of their homes. As if losing all previously built-up equity and the initial down payment (if any) was not bad enough, homeowners may also be hit with unanticipated taxes.
The IRS historically considers loan forgiveness either partially or in full by a lender to be taxable income to the homeowner. This is known as cancellation of debt (COD) income. Situations that could give rise to COD income include foreclosures, deed in lieu of foreclosure, short sales, and a reduction in the loan principal and/or interest rate.
However, an individual who meets the criteria under the Mortgage Forgiveness Debt Relief Act of 2007 may exclude COD income from taxable income.
To qualify for the tax relief, the property must be the homeowner’s primary residence. This new Act does not apply to debt forgiveness on vacation homes, rental properties, credit card loans, student loans, or car loans. However, different types of tax relief may be available in these situations, which will be discussed in Part 2.
The tax relief applies only to the original purchase price plus costs of improvements of the homeowner’s principal residence. It does not apply to debt discharges for second mortgages, home equity loans, or cash taken out during a refinance, unless the loan proceeds were used to acquire, construct, or substantially improve the taxpayer’s home. The maximum amount of relief is generally limited to $2 million.
It is also important to note that if an individual has refinanced his mortgage loan, there could be additional tax and legal ramifications. He will now have two tax calculations: one for COD income and the other for capital gains income.
For example, Iam Brooke bought her house for $100K, then refinanced and took cash out when her property value went up. She did not use this fund to improve her house. Her refinanced loan is now $500K. With the market downturn, her house is now worth only $250K and she has to foreclose on her home.
Iam will have total COD income of $250K (loan balance of $500K less fair market value of $250K). Of this amount, only $100K may be excluded from taxable income under the new Act. The remaining $150K of COD income will be taxed at her ordinary income tax rate unless Iam declares bankruptcy or is insolvent, meaning her liabilities exceed her assets’ fair market value. This determination would be made at the time of the foreclosure or short sale occurrence.
Aside from COD income, Iam will also have capital gains income of $150K (fair market value of $250K less purchase price of $100K). Fortunately, the $150K capital gains may be excluded under IRC Section 121 home gain exclusion provision.
Since this article is focused on the tax ramifications, the legal consequences will not be discussed. Please consult a qualify real estate attorney for additional information.
Once a foreclosure or short sale transaction is completed, the lender will issue a Form 1099-C for cancellation of debt or Form 1099-A for foreclosure. Homeowners should pay special attention to the amount of debt forgiven and the fair market value listed for their home. Should the homeowner disagree with any of these amounts, he should contact the lender and request a corrected Form 1099.
To claim this tax relief, homeowners must attach a completed Form 982 to their federal income tax return. At the time of this writing, California has not adopted this new federal Act. However, a pending CA bill would conform to the federal Act. Unlike the federal Act, which is valid for debt forgiven from 2007 through 2009, the CA bill applies to debt relief in 2008 only.
It is highly recommended that homeowners who are undergoing or anticipating foreclosure or short sale seek professional help from qualified tax and legal advisors. This article is provided for informational purposes only and may not be relied upon as tax or legal advice.
Do I Qualify For Mortgage Debt Relief?
By Ilyce R. Glink
Inman News
It's January, which means it's time to start thinking about filing your taxes. But you may need extra tax help this year, thanks to an active December on Capitol Hill.
In late December, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which provides tax help for homeowners facing foreclosure or who sell their homes in a short sale.
Previously, if the value of your home declined and your bank or lender forgave a portion of your mortgage debt, the tax code treated the amount forgiven as income that could be taxed, according to Eric L. Smith, a spokesman for the IRS.
In other words, if your lender forgave $20,000 in mortgage debt because your house was worth $20,000 less than your mortgage balance, the IRS treated this debt forgiveness the same as income that you earned from your job -- and required you to add $20,000 in phantom income to the amount of your annual income and pay tax on it at your marginal tax rate.
Instead of getting tax help at a time of great need, you were getting a kick in the pants the following April 15.
Under the new rule, taxpayers can exclude up to $2 million of mortgage debt forgiven in 2007, 2008 or 2009 on their principal residence. (The limit is $1 million for a married person filing a separate return.) According to Smith, mortgage debt reduced through restructuring, as well as mortgage debt forgiven in connection with a foreclosure, both qualify for the tax exclusion.
It's worth noting that the Mortgage Forgiveness Debt Relief Act of 2007 applies only to principal residences, not second homes or investment property, says Chet Burgess, an enrolled agent who owns Brookwood Tax Services, in Atlanta. The rules from IRS Section 121 define what a qualified principal residence is, but at a baseline, you must live there the majority of the year.
The IRS doesn't make it easy. You may need some additional tax help to be sure you're filling out the forms correctly.
"The taxpayer will have to do some calculations on the side, off the tax return, in order to show the IRS how much has been forgiven," Burgess explains.
When a lender forgives mortgage debt, the lender sends the taxpayer Form 1099C or 1099A. The form should state the fair market value of the home. In the case of a short sale, Burgess says, that would be the sales price. In the case of a home that's been foreclosed upon, the lender may just put the value of the loan in the field where the fair market value of the home should be listed. Or the 1099C or 1099A form might not include a fair market value at all.
That's a problem because that number is key to the off-the-return calculations you must complete and submit to the IRS.
"Let's say someone buys a car for $10,000 and has a loan for the full amount. And let's say on the day the car is repossessed it is worth $8,000. The lender might put $10,000 as the loan forgiveness amount, even though the car is actually worth $8,000. The amount of the loan forgiveness is just $2,000, not $10,000," Burgess notes.
That's why you need to know the fair market value of the property, and be able to document that for the IRS. In some cases, Burgess has advised clients to hire an appraiser to document the fair market value.
Here's another important point: While the Mortgage Forgiveness Debt Relief Act of 2007 will allow loan forgiveness of up to $2 million on a primary residence, it's applicable only to acquisition indebtedness, Burgess says.
"The amount of money it takes to buy your existing home, build a new home, or the equity you cash out to make a substantial improvement to your home counts as acquisition indebtedness. But if someone took out $100,000 in home equity to buy a Hummer or send their kids to college, that doesn't count," he adds.
For example, let's say 10 years ago you paid $100,000 for your house and got a 100 percent loan. Five years ago, the value of your home had doubled to $200,000. So you did a cash-out refinance for $150,000, and pocketed around $50,000. If you used that money to pay college tuition or buy a fancy fur coat, and then later sold your home for just $100,000, the $50,000 that your lender forgave would still be taxable. Why? It's because you didn't use the money to buy, build or renovate your home.
How would the IRS know how you spent your cash? Burgess says you're required to submit your tax calculations along with the 1099C or 1099A with your return. If you get audited, the IRS will want to see your original warranty deed or perhaps your original HUD-1 form (that lists where all of the cash goes in a transaction). If you used home-equity money to renovate or improve the property, you'll need to provide copies of cancelled checks, original receipts and invoices and other supporting documents.
For those homeowners who are facing foreclosure or a short sale this year, Burgess said the IRS had not, as of Jan. 15, come up with a way to report all of this on your federal income tax form.
His best advice: Use electronic tax preparation software this year. The private tax software companies have poured tremendous resources into getting their forms updated electronically.
Once you complete the tax software, print your completed tax forms and then attach your calculations and paperwork to your return.
"You're supposed to be able to attach a PDF form with your statement to the e-file return, but I've heard from other tax preparers that it doesn't always work. In a case like this, I'd print the return to make sure that a human being is actually looking at each page to make sure everything is included," Burgess advises.
The IRS pre-printed forms were printed last October, and do not reflect the new tax law changes. "In fact, some of the forms have not yet been approved for filing," he says, noting that anyone subject to the alternative minimum tax (AMT) did not have the correct forms approved as of mid-January.
Inman News
It's January, which means it's time to start thinking about filing your taxes. But you may need extra tax help this year, thanks to an active December on Capitol Hill.
In late December, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which provides tax help for homeowners facing foreclosure or who sell their homes in a short sale.
Previously, if the value of your home declined and your bank or lender forgave a portion of your mortgage debt, the tax code treated the amount forgiven as income that could be taxed, according to Eric L. Smith, a spokesman for the IRS.
In other words, if your lender forgave $20,000 in mortgage debt because your house was worth $20,000 less than your mortgage balance, the IRS treated this debt forgiveness the same as income that you earned from your job -- and required you to add $20,000 in phantom income to the amount of your annual income and pay tax on it at your marginal tax rate.
Instead of getting tax help at a time of great need, you were getting a kick in the pants the following April 15.
Under the new rule, taxpayers can exclude up to $2 million of mortgage debt forgiven in 2007, 2008 or 2009 on their principal residence. (The limit is $1 million for a married person filing a separate return.) According to Smith, mortgage debt reduced through restructuring, as well as mortgage debt forgiven in connection with a foreclosure, both qualify for the tax exclusion.
It's worth noting that the Mortgage Forgiveness Debt Relief Act of 2007 applies only to principal residences, not second homes or investment property, says Chet Burgess, an enrolled agent who owns Brookwood Tax Services, in Atlanta. The rules from IRS Section 121 define what a qualified principal residence is, but at a baseline, you must live there the majority of the year.
The IRS doesn't make it easy. You may need some additional tax help to be sure you're filling out the forms correctly.
"The taxpayer will have to do some calculations on the side, off the tax return, in order to show the IRS how much has been forgiven," Burgess explains.
When a lender forgives mortgage debt, the lender sends the taxpayer Form 1099C or 1099A. The form should state the fair market value of the home. In the case of a short sale, Burgess says, that would be the sales price. In the case of a home that's been foreclosed upon, the lender may just put the value of the loan in the field where the fair market value of the home should be listed. Or the 1099C or 1099A form might not include a fair market value at all.
That's a problem because that number is key to the off-the-return calculations you must complete and submit to the IRS.
"Let's say someone buys a car for $10,000 and has a loan for the full amount. And let's say on the day the car is repossessed it is worth $8,000. The lender might put $10,000 as the loan forgiveness amount, even though the car is actually worth $8,000. The amount of the loan forgiveness is just $2,000, not $10,000," Burgess notes.
That's why you need to know the fair market value of the property, and be able to document that for the IRS. In some cases, Burgess has advised clients to hire an appraiser to document the fair market value.
Here's another important point: While the Mortgage Forgiveness Debt Relief Act of 2007 will allow loan forgiveness of up to $2 million on a primary residence, it's applicable only to acquisition indebtedness, Burgess says.
"The amount of money it takes to buy your existing home, build a new home, or the equity you cash out to make a substantial improvement to your home counts as acquisition indebtedness. But if someone took out $100,000 in home equity to buy a Hummer or send their kids to college, that doesn't count," he adds.
For example, let's say 10 years ago you paid $100,000 for your house and got a 100 percent loan. Five years ago, the value of your home had doubled to $200,000. So you did a cash-out refinance for $150,000, and pocketed around $50,000. If you used that money to pay college tuition or buy a fancy fur coat, and then later sold your home for just $100,000, the $50,000 that your lender forgave would still be taxable. Why? It's because you didn't use the money to buy, build or renovate your home.
How would the IRS know how you spent your cash? Burgess says you're required to submit your tax calculations along with the 1099C or 1099A with your return. If you get audited, the IRS will want to see your original warranty deed or perhaps your original HUD-1 form (that lists where all of the cash goes in a transaction). If you used home-equity money to renovate or improve the property, you'll need to provide copies of cancelled checks, original receipts and invoices and other supporting documents.
For those homeowners who are facing foreclosure or a short sale this year, Burgess said the IRS had not, as of Jan. 15, come up with a way to report all of this on your federal income tax form.
His best advice: Use electronic tax preparation software this year. The private tax software companies have poured tremendous resources into getting their forms updated electronically.
Once you complete the tax software, print your completed tax forms and then attach your calculations and paperwork to your return.
"You're supposed to be able to attach a PDF form with your statement to the e-file return, but I've heard from other tax preparers that it doesn't always work. In a case like this, I'd print the return to make sure that a human being is actually looking at each page to make sure everything is included," Burgess advises.
The IRS pre-printed forms were printed last October, and do not reflect the new tax law changes. "In fact, some of the forms have not yet been approved for filing," he says, noting that anyone subject to the alternative minimum tax (AMT) did not have the correct forms approved as of mid-January.
Buying a Short Sale Property Comes With Risk
Buying a short-sale property comes with risk
In this deal, ball is in lender's court
By Dian Hymer
Inman News
In the recent past, the inventory of homes for sale was pitifully low. Now, the number of homes for sale has increased in many areas. However, there are listings being offered for sale on less-than-advantageous terms. An example is the so-called "short sale."
In a conventional home sale, the buyer usually needs only the seller's acceptance in order to go forward with a transaction. However, in a short sale, the lender's approval is also needed in order for the sale to close.
A short sale occurs when a property sells for a price that is insufficient to pay back the loans secured against it and the seller's closing costs. In such a case, the sellers either have to come up with enough cash to cover the shortfall, or their lender(s) must agree to forgive the amount that the sellers are short in order for the sale to go through.
Short sales have not been a big part of the home sale market since the recession of the early 1990s. At that time, home prices dropped as much as 20 percent in some markets. Some sellers who purchased just before the recession with little cash down were unable to sell for a high-enough price to pay back the amount they owed.
A low cash down payment at that time was typically 10 percent of the purchase price. During the past couple of years, many high-income, low-cash-down home buyers used no-cash-down, interest-only mortgages to complete their purchase. If such a buyer is transferred a year later, loses his job or gets divorced and has to sell, a short-sale situation could occur, even if home prices haven't declined.
Here's why. A buyer who makes no down payment has no equity in the property. With an interest-only loan, the amount borrowed isn't reduced during the first years of the loan unless the borrower makes additional principal pay-downs.
If the mortgage is a pay-option variety that permits the borrower to pay less than an interest-only payment, the principal or amount borrowed could actually increase rather than decrease with each monthly mortgage payment. Couple that with scant home-price appreciation and a seller could come up short even if he sold for the amount he paid, once closing costs such as the brokerage commission and transfer taxes are taken into account.
HOUSE HUNTING TIP: Beware of sellers in short-sale situations who list their properties at below-market prices in order to entice buyers into making offers. Before getting serious, find out the amount of the loans that must be paid off to close the sale. If the loan amounts total more than the sellers' asking price, then you will either need to pay more, or the seller's lenders will need to agree to accept less than they're owed. That is, unless the sellers have savings to contribute to the sale.
Buyers who want to go ahead with a purchase that is subject to the lender's approval should be prepared for a longer-than-typical closing. Usually, the lender won't even take a short sale under consideration until the sellers have accepted an offer. It can then take three or four months before you'll know whether or not the lender will approve the sale.
THE CLOSING: Be sure to include a provision in the contract that allows you to withdraw at any time up until the lender approves the sale. This way you can get out of the contract without penalty if it looks like the transaction has little chance of closing.
In this deal, ball is in lender's court
By Dian Hymer
Inman News
In the recent past, the inventory of homes for sale was pitifully low. Now, the number of homes for sale has increased in many areas. However, there are listings being offered for sale on less-than-advantageous terms. An example is the so-called "short sale."
In a conventional home sale, the buyer usually needs only the seller's acceptance in order to go forward with a transaction. However, in a short sale, the lender's approval is also needed in order for the sale to close.
A short sale occurs when a property sells for a price that is insufficient to pay back the loans secured against it and the seller's closing costs. In such a case, the sellers either have to come up with enough cash to cover the shortfall, or their lender(s) must agree to forgive the amount that the sellers are short in order for the sale to go through.
Short sales have not been a big part of the home sale market since the recession of the early 1990s. At that time, home prices dropped as much as 20 percent in some markets. Some sellers who purchased just before the recession with little cash down were unable to sell for a high-enough price to pay back the amount they owed.
A low cash down payment at that time was typically 10 percent of the purchase price. During the past couple of years, many high-income, low-cash-down home buyers used no-cash-down, interest-only mortgages to complete their purchase. If such a buyer is transferred a year later, loses his job or gets divorced and has to sell, a short-sale situation could occur, even if home prices haven't declined.
Here's why. A buyer who makes no down payment has no equity in the property. With an interest-only loan, the amount borrowed isn't reduced during the first years of the loan unless the borrower makes additional principal pay-downs.
If the mortgage is a pay-option variety that permits the borrower to pay less than an interest-only payment, the principal or amount borrowed could actually increase rather than decrease with each monthly mortgage payment. Couple that with scant home-price appreciation and a seller could come up short even if he sold for the amount he paid, once closing costs such as the brokerage commission and transfer taxes are taken into account.
HOUSE HUNTING TIP: Beware of sellers in short-sale situations who list their properties at below-market prices in order to entice buyers into making offers. Before getting serious, find out the amount of the loans that must be paid off to close the sale. If the loan amounts total more than the sellers' asking price, then you will either need to pay more, or the seller's lenders will need to agree to accept less than they're owed. That is, unless the sellers have savings to contribute to the sale.
Buyers who want to go ahead with a purchase that is subject to the lender's approval should be prepared for a longer-than-typical closing. Usually, the lender won't even take a short sale under consideration until the sellers have accepted an offer. It can then take three or four months before you'll know whether or not the lender will approve the sale.
THE CLOSING: Be sure to include a provision in the contract that allows you to withdraw at any time up until the lender approves the sale. This way you can get out of the contract without penalty if it looks like the transaction has little chance of closing.
1st Time Buyer
This week my question to those of you who still rent or who know someone who still rents "How much longer do you want to continue paying your landlord's mortgage? The Department of Commerce reports that between 1995 and 2007, the average renter accumulated a little over $4,000 in net worth. The average homeowner accumulated $184,400. That translates into $180,000 more or $1,500 per month. In other words, each month that the average first time buyer continues to rent, it costs them $1,500 in lost wealth accumulation. Furthermore, renters are subject to rent increases as well as higher tax rates because they cannot take a mortgage deduction.
With the drop in home prices and the currently attractive mortgage interest rates, now is a great time to buy and start building equity. As the government report has found, you will build far greater new worth as a homeowner than a renter. If you or someone you know is still renting, please give me a call. I would welcome the opportunity to show you what I can do for you that other realtors can't. Please call me on my cell at 949-702-4499.
With the drop in home prices and the currently attractive mortgage interest rates, now is a great time to buy and start building equity. As the government report has found, you will build far greater new worth as a homeowner than a renter. If you or someone you know is still renting, please give me a call. I would welcome the opportunity to show you what I can do for you that other realtors can't. Please call me on my cell at 949-702-4499.
Are Tenants Required To Continue Paying Rent?
In most states, a foreclosure is accomplished by a sale on the courthouse steps (if no one bids, the lender keeps the property). In a few states, a judge can declare the property transferred over to the lender (this is known as a strict judicial foreclosure). But in every state, the owner needs to be informed, sometimes multiple times, that the axe is about to fall. It sounds like the "Notice of Intent to Foreclose" was your lender's formal announcement that negotiations are over and a sale (or judicial foreclosure) will take place. Because that sale or decree hasn't happened yet, the property is still yours and your tenants do have to pay their rent to you. After the foreclosure, the rent goes to the foreclosing lender or new owner.
As with many things in the law, there are exceptions. In states that allow tenants to withhold rent when the owner has not maintained the property in a "fit and habitable" condition, the tenants could stop paying rent if you (or the bank or new owner) neglect your maintenance responsibilities. Sadly, many landlords have failed to maintain property that they know they'll soon lose; and increasingly, banks and even new, institutional owners have let foreclosed properties lapse into disrepair (bankers and offshore trusts make poor landlords). You, of course, can't guarantee how the new owner will treat the property, but you can make sure that your tenants have no legitimate reason to withhold rent now by continuing to maintain the property.
Whether to begin eviction proceedings is another matter, and a delicate one. Keep in mind that after the foreclosure, these residents are almost surely going to be told to move, will incur moving expenses and inconvenience, and may end up with a comparable rental at a higher rent. In fact, they could sue you for the monetary consequences to them of your failure to deliver on your lease.
Schedule a time to talk with your tenants and explain the legal reality that you are, however fleetingly, still the owner. Do your best to assure them that you will not abandon your legal responsibilities as long as you own the property. But in view of the expenses the tenants will incur when the bank swoops in, you might offer to compromise on this last month or two of rent. If the residents refuse to meet you part way, you could point out that you are within your rights to file for eviction for nonpayment of rent. Even if you (or the bank or new owners) ultimately dismiss the case, the fact that such a case was filed may show up in tenant screening reports in the future, much to your tenants' disfavor. This consequence may spur them to compromise.
As with many things in the law, there are exceptions. In states that allow tenants to withhold rent when the owner has not maintained the property in a "fit and habitable" condition, the tenants could stop paying rent if you (or the bank or new owner) neglect your maintenance responsibilities. Sadly, many landlords have failed to maintain property that they know they'll soon lose; and increasingly, banks and even new, institutional owners have let foreclosed properties lapse into disrepair (bankers and offshore trusts make poor landlords). You, of course, can't guarantee how the new owner will treat the property, but you can make sure that your tenants have no legitimate reason to withhold rent now by continuing to maintain the property.
Whether to begin eviction proceedings is another matter, and a delicate one. Keep in mind that after the foreclosure, these residents are almost surely going to be told to move, will incur moving expenses and inconvenience, and may end up with a comparable rental at a higher rent. In fact, they could sue you for the monetary consequences to them of your failure to deliver on your lease.
Schedule a time to talk with your tenants and explain the legal reality that you are, however fleetingly, still the owner. Do your best to assure them that you will not abandon your legal responsibilities as long as you own the property. But in view of the expenses the tenants will incur when the bank swoops in, you might offer to compromise on this last month or two of rent. If the residents refuse to meet you part way, you could point out that you are within your rights to file for eviction for nonpayment of rent. Even if you (or the bank or new owners) ultimately dismiss the case, the fact that such a case was filed may show up in tenant screening reports in the future, much to your tenants' disfavor. This consequence may spur them to compromise.
Monday, June 23, 2008
You can now subscribe!
Hi everyone!
This blog is a completely new method I have come up with to give everybody a dedicated place to come for new and now archived articles I release, thoughts, ideas and eventually a place for you to come for all answers real estate (until I can build all that content, you will have to contact me directly with specific questions). You will see as time progresses there will be numerous changes and additions. As a way to help me, please voice your input and opinions on what you find helpful. Also if I make a change you do not like, I would like to hear about that too.
The first addition I have added is the ability to subscribe to this blog. Simply by entering your e-mail address in the box on the upper right hand side of the page, you will be notified via e-mail every time a new article or “blog” has been posted for viewing. I hope this will help everyone stay up to date and not leave you wondering "when does Rick plan to post in his blog next?" Keep in mind you can always view previous posts from my blog by using the widget on the bottom right hand side of the page called "review previous blog articles".
Thank you for joining me today and I wish you all a wonderful week!
Rick
This blog is a completely new method I have come up with to give everybody a dedicated place to come for new and now archived articles I release, thoughts, ideas and eventually a place for you to come for all answers real estate (until I can build all that content, you will have to contact me directly with specific questions). You will see as time progresses there will be numerous changes and additions. As a way to help me, please voice your input and opinions on what you find helpful. Also if I make a change you do not like, I would like to hear about that too.
The first addition I have added is the ability to subscribe to this blog. Simply by entering your e-mail address in the box on the upper right hand side of the page, you will be notified via e-mail every time a new article or “blog” has been posted for viewing. I hope this will help everyone stay up to date and not leave you wondering "when does Rick plan to post in his blog next?" Keep in mind you can always view previous posts from my blog by using the widget on the bottom right hand side of the page called "review previous blog articles".
Thank you for joining me today and I wish you all a wonderful week!
Rick
Thursday, June 19, 2008
Help! My Mortgage Is Adjusting!
Q: My mortgage was fixed for five years and is set to start adjusting in five months. I talked with my mortgage broker and she said that my payment will go up by about 40 percent at that time, which I certainly cannot afford. She ran some comps and told me that I owe $100,000 more on my home than it is currently worth. Her advice was that I should buy another, lower-priced home right now, and then just stop making payments and let the bank foreclose on it. Should I walk away from my home?
A: No. The only thing you should walk away from right now is your mortgage broker.
Mindset Management
I commend you for staying conscious of what's going on with your mortgage and trying to make proactive efforts to handle the upcoming mortgage payment adjustment in advance. Those who wait until the adjustment has already happened end up in desperation and panic -- not a fun place to be.
Owning a home is a very grown-up thing to do, and if you are sufficiently mature to own a home -- either your current one or a future home -- then you are certainly mature enough to deal with the consequences of some less-than-perfect mortgage decision-making. There are many options for proactively dealing with your impending mortgage adjustment short of abandoning your home. It would be a major step in the right direction for your relationship with money and your personal financial and emotional maturity for you to take responsibility for the consequences of your past decisions and pursue those options before throwing in the towel.
There's an old saying to the effect of "the way you do one thing is the way you do everything." I don't think this is always true, because I believe that every one of us can find examples of times when we have made smart or dumb decisions, acted quickly or procrastinated, and been kind or mean. But with that said, in certain areas of our life we tend to act out certain patterns of behavior over and over again. Consider this -- in your personal financial decisions, do you often find yourself backed into a corner and looking for an escape route? Many homeowners who just "walk away" from their homes are simply acting out one more instance of a lifelong cycle of overextending themselves, then bailing out. Consider taking this opportunity to break this cycle, and then harnessing the learning you gain and the momentum you create to become a more educated, savvy and deliberate mortgage and financial decision-maker in the future.
Your mortgage broker's advice was intended to position you against the worst-case scenario. What if you tried to project the best-case scenario and did everything in your power to manifest that outcome? That requires a big mindset shift, but I've seen homeowners do it, and end up keeping their homes or selling them -- both of which are preferable options to walking away.
Need-to-Knows
Foreclosure is definitely your worst-case scenario. Whether you walk away from your house or try to resolve things with your lender, foreclosure will result in not just a smear on your credit report, but a major decrease in your FICO score sufficient to prohibit you from buying another home for several years and to cause your credit-card companies to start closing your accounts. The answer to this is not to simply buy a new home ahead of time; frankly, if you are that overextended, I'm not sure how feasible it is for you to obtain financing on a home right now, and it is a morally bankrupt move to plan so strategically to abandon your obligations under one mortgage and attempt to avoid the consequences of doing so in one fell swoop. You might not have expected to hear this coming from a Realtor/attorney, but it just ain't the right thing to do.
Rather, the ethically, morally and financially responsible move is to put into play a foreclosure-avoidance action plan, and then work that plan. It's a hackneyed turn of phrase now to say that banks really don't want to foreclose on your home. Recent history has shown that banks are institutions, not people, and sometimes move very slowly to assist borrowers seeking to avoid foreclosure even when avoidance is an institutional priority. However, there really are homeowners out there having success avoiding foreclosure, and you should try to join their ranks before just throwing up your hands.
Homes are not disposable. The fact that you currently owe more on your home than it is worth is not sufficient justification for abandoning your home. I know many homeowners who once were upside down, but stayed in their home for another 10 or 20 years, and now that same home is worth three or four times what they paid for it. Take a long-term view on the value of your home, and don't toss it away like you would Enron stock certificates; unlike those shares, your home's value will come back over the long haul.
Action Plan
Here's a step-by-step action plan to take in the event that your mortgage is about to start adjusting.
1. Try to refi. If you are worried about being upside down on your home (i.e., owing more than it's worth), you might need to assess how sustainable this home is for you. If you simply bought way more home than you can ever realistically afford with a reasonable mortgage, you should jump straight to #3 and try to sell your home. If other events, like a temporary loss of income, are making it difficult for you to afford your home now but you think you can afford it over the long haul, work with an ethical mortgage broker to see if it makes sense for you to refinance your mortgage, and whether any affordable mortgage options that are sustainable over the long term are available to you.
2. Loan modification. Call your lender!! Ask for the loss mitigation department; put together the hardship package they request (usually a bunch of your financial paperwork to show that you really can't afford the upcoming adjustment); and then try to negotiate a few months with no payment, a reduction in the balance of your loan based on fair market value, an extension of the low-payment period for several more years, a reduction in interest rate, etc. Lenders vary widely in their amenability to making these sorts of arrangements.
3. Get extreme about increasing your income. If you truly want to keep your home, consider going to extremes. I've seen people avoid foreclosure by renting out rooms, taking second jobs or taking in freelance work on the side.
4. Short sale. If you just bought way more home than you can ever realistically afford, trying to liquidate your home through a short sale is a great option. Work with a Realtor who has experience successfully representing sellers in short sales. I've even seen homeowners have real estate investor friends purchase their home through a short sale, which may give the seller the opportunity to lease and later buy the home back.
Responsibility is the ability to respond, not the ability to run from your problems. The savvy way to respond to your situation is to exhaust the above ethically and financially responsible options before your mortgage adjusts. If you don't, you risk reinforcing a pattern of financial irresponsibility, and ending up in a similar place -- overextended and looking for an escape route -- several years down the road.
Real Estate Savvy
By Tara-Nicholle Nelson, Thursday, June 12, 2008.
Inman News
A: No. The only thing you should walk away from right now is your mortgage broker.
Mindset Management
I commend you for staying conscious of what's going on with your mortgage and trying to make proactive efforts to handle the upcoming mortgage payment adjustment in advance. Those who wait until the adjustment has already happened end up in desperation and panic -- not a fun place to be.
Owning a home is a very grown-up thing to do, and if you are sufficiently mature to own a home -- either your current one or a future home -- then you are certainly mature enough to deal with the consequences of some less-than-perfect mortgage decision-making. There are many options for proactively dealing with your impending mortgage adjustment short of abandoning your home. It would be a major step in the right direction for your relationship with money and your personal financial and emotional maturity for you to take responsibility for the consequences of your past decisions and pursue those options before throwing in the towel.
There's an old saying to the effect of "the way you do one thing is the way you do everything." I don't think this is always true, because I believe that every one of us can find examples of times when we have made smart or dumb decisions, acted quickly or procrastinated, and been kind or mean. But with that said, in certain areas of our life we tend to act out certain patterns of behavior over and over again. Consider this -- in your personal financial decisions, do you often find yourself backed into a corner and looking for an escape route? Many homeowners who just "walk away" from their homes are simply acting out one more instance of a lifelong cycle of overextending themselves, then bailing out. Consider taking this opportunity to break this cycle, and then harnessing the learning you gain and the momentum you create to become a more educated, savvy and deliberate mortgage and financial decision-maker in the future.
Your mortgage broker's advice was intended to position you against the worst-case scenario. What if you tried to project the best-case scenario and did everything in your power to manifest that outcome? That requires a big mindset shift, but I've seen homeowners do it, and end up keeping their homes or selling them -- both of which are preferable options to walking away.
Need-to-Knows
Foreclosure is definitely your worst-case scenario. Whether you walk away from your house or try to resolve things with your lender, foreclosure will result in not just a smear on your credit report, but a major decrease in your FICO score sufficient to prohibit you from buying another home for several years and to cause your credit-card companies to start closing your accounts. The answer to this is not to simply buy a new home ahead of time; frankly, if you are that overextended, I'm not sure how feasible it is for you to obtain financing on a home right now, and it is a morally bankrupt move to plan so strategically to abandon your obligations under one mortgage and attempt to avoid the consequences of doing so in one fell swoop. You might not have expected to hear this coming from a Realtor/attorney, but it just ain't the right thing to do.
Rather, the ethically, morally and financially responsible move is to put into play a foreclosure-avoidance action plan, and then work that plan. It's a hackneyed turn of phrase now to say that banks really don't want to foreclose on your home. Recent history has shown that banks are institutions, not people, and sometimes move very slowly to assist borrowers seeking to avoid foreclosure even when avoidance is an institutional priority. However, there really are homeowners out there having success avoiding foreclosure, and you should try to join their ranks before just throwing up your hands.
Homes are not disposable. The fact that you currently owe more on your home than it is worth is not sufficient justification for abandoning your home. I know many homeowners who once were upside down, but stayed in their home for another 10 or 20 years, and now that same home is worth three or four times what they paid for it. Take a long-term view on the value of your home, and don't toss it away like you would Enron stock certificates; unlike those shares, your home's value will come back over the long haul.
Action Plan
Here's a step-by-step action plan to take in the event that your mortgage is about to start adjusting.
1. Try to refi. If you are worried about being upside down on your home (i.e., owing more than it's worth), you might need to assess how sustainable this home is for you. If you simply bought way more home than you can ever realistically afford with a reasonable mortgage, you should jump straight to #3 and try to sell your home. If other events, like a temporary loss of income, are making it difficult for you to afford your home now but you think you can afford it over the long haul, work with an ethical mortgage broker to see if it makes sense for you to refinance your mortgage, and whether any affordable mortgage options that are sustainable over the long term are available to you.
2. Loan modification. Call your lender!! Ask for the loss mitigation department; put together the hardship package they request (usually a bunch of your financial paperwork to show that you really can't afford the upcoming adjustment); and then try to negotiate a few months with no payment, a reduction in the balance of your loan based on fair market value, an extension of the low-payment period for several more years, a reduction in interest rate, etc. Lenders vary widely in their amenability to making these sorts of arrangements.
3. Get extreme about increasing your income. If you truly want to keep your home, consider going to extremes. I've seen people avoid foreclosure by renting out rooms, taking second jobs or taking in freelance work on the side.
4. Short sale. If you just bought way more home than you can ever realistically afford, trying to liquidate your home through a short sale is a great option. Work with a Realtor who has experience successfully representing sellers in short sales. I've even seen homeowners have real estate investor friends purchase their home through a short sale, which may give the seller the opportunity to lease and later buy the home back.
Responsibility is the ability to respond, not the ability to run from your problems. The savvy way to respond to your situation is to exhaust the above ethically and financially responsible options before your mortgage adjusts. If you don't, you risk reinforcing a pattern of financial irresponsibility, and ending up in a similar place -- overextended and looking for an escape route -- several years down the road.
Real Estate Savvy
By Tara-Nicholle Nelson, Thursday, June 12, 2008.
Inman News
Condo For Rent In Beautiful FootHill Ranch
There is a beautiful property for rent at 19431 Rue De Valore unit 28B in the Portola hills community of Lake Forest. This condo is a spacious one bedroom, one full bath, with a huge gated patio. Spread out over an open 795 square foot floor plan, it is freshly painted and has new carpet. The unit is located in a Resort style gated community with 2 pools, spas, tennis courts, clubhouse and gym. There is a large walk in closet with good storage space. The condo comes with a 1 car detached garage and a parking space for a second car. The property is conveniently located with easy access to the 241 toll road, a variety of restaurants and shopping, parks as well as great schools.
Click here for Craigs List Ad!
Click on the video below to have a look.
Click here for Craigs List Ad!
Click on the video below to have a look.
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