Owning your Home Offers Some Tax Advantages
Whether you own a mansion or a mobile home, many home-related expenses are tax deductible.
Mortgage interest and property tax are well-known deductions. To take advantage of them, you have to file the 1040 long form and Schedule A. For some homeowners, however, it might be better to file the EZ form because standard deductions would be greater than the allowable expenses.
The interest on a home equity loan is fully tax deductible unless the balance on the original mortgage plus the equity loan is greater than the property's value. After that, it's on a sliding scale. If you bought your home after Jan. 1, 2007, mortgage insurance is fully tax deductible if your income is $100,000 or less.
Mortgage interest and property taxes on a vacation home are deductible. But it doesn't even have to be a house. It could be an RV as long as it has cooking, sleeping, and bathroom facilities.
If you paid points to get a better interest rate on any of your home loans, you can deduct the points in the year you paid them. If you refinance the home, points are deducted over the life of the mortgage.
If you changed jobs and had to move more than 50 miles and had to sell a home because of the move, moving expenses are deductible unless reimbursed by an employer.
When your home has been damaged by a natural disaster such as fire, hurricane, or flood, some of the bills for renovating the property that were not covered by insurance can be deducted. Check with your tax preparer for more information.
Do you have a home office used on a regular basis for business? Keep records on the percentage of the house that is used for business and make a proper allocation of expenses. For example, if 20 percent of your house is used for business, you will be able to deduct 20 percent of utilities and basic home repairs.
Keep records that show what you do in your office to constitute a business activity.
See us at:
http://RalphandTricia.com
Some hot links
Wednesday, November 4, 2009
Saturday, October 24, 2009
The Basics of Foreclosure “Short–Sales
by Attorney William Bronchick
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You will likely come across dozens of properties in foreclosure with little or no equity, that is, the seller owes at close to or more than the property is worth. In these situations, lenders are sometimes willing to accept less than the full amount due, commonly referred to a “short pay” or “short sale.”
Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. You will have to call around to locate the lender’s “Loss Mitigation Department”. More than likely, each lender you deal with will have a separate name for this department, so be patient when calling. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the negotiating begins.
From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process - attorney fee’s, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster, so it is able to cut its losses. Your job as the investor is to convince the lender that it will fare better by accepting less money now.
The lender will want some information about the property, the borrower and the deal he has made with you. Specifically, the lender wants to know what the property is worth. The lender will generally hire a local real estate broker or appraiser to evaluate the property (called a broker’s price opinion or “BPO”). You can also submit your own appraisal or comparable sales information. In addition you will want to offer as much specific negative information about the property as possible. Also, include some relevant information about the neighborhood and the local economy if things are bad (copies of newspaper articles with “bad news” may help). A contract’s bid for repair estimates should also be submitted, which, of course, should be the highest bid you can obtain!
The lender will also ask for financial information about the borrower. Sort of a backwards loan application, the borrower must prove that he is broke and unable to afford the payments. The borrower must show that he has no other source of income or assets to repay the loan. This process may involve as much, if not more paperwork than an original mortgage application! The borrower should submit a “hardship letter”, which is basically a sob story about how much financial trouble the borrower is in. This may require a little literary creativity, and some help on your part. Don’t lie, just paint a picture that doesn’t look good.
Finally, the lender generally wants to see a written contract between you and the seller. The lender wants to make sure the seller isn’t walking away with any cash from the deal. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the “net cash” to the seller is the exact amount of the short pay to the lender. A preliminary HUD-1 settlement statement is often requested, which can be difficult, since many title and escrow companies simple won’t prepare one in advance of closing. You can prepare your own HUD-1, and simply write “preliminary” on the top.
Don’t be surprised if your first short sale bid is rejected. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you steal. Many short sales fall through if the BPO comes in too high, which is often the case. You can’t pull the wool over a lender’s eyes – if the property isn’t is need of serious repair, it is unlikely you can convince the lender the property is worth a whole lot less than the appraised value.
The process of the short sale is not that complicated, but the success or failure of the deal depends upon how you present it to the lender. Many novice investors and realtors give up at short sales quickly because their first deal is rejected. Like any business, short sales takes practice to get good. Generally speaking, loss mitigators are pretty good at spotting an amateur investor. If you know what you are doing, the loss mitigators are more likely to make a deal with you.
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You will likely come across dozens of properties in foreclosure with little or no equity, that is, the seller owes at close to or more than the property is worth. In these situations, lenders are sometimes willing to accept less than the full amount due, commonly referred to a “short pay” or “short sale.”
Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. You will have to call around to locate the lender’s “Loss Mitigation Department”. More than likely, each lender you deal with will have a separate name for this department, so be patient when calling. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the negotiating begins.
From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process - attorney fee’s, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster, so it is able to cut its losses. Your job as the investor is to convince the lender that it will fare better by accepting less money now.
The lender will want some information about the property, the borrower and the deal he has made with you. Specifically, the lender wants to know what the property is worth. The lender will generally hire a local real estate broker or appraiser to evaluate the property (called a broker’s price opinion or “BPO”). You can also submit your own appraisal or comparable sales information. In addition you will want to offer as much specific negative information about the property as possible. Also, include some relevant information about the neighborhood and the local economy if things are bad (copies of newspaper articles with “bad news” may help). A contract’s bid for repair estimates should also be submitted, which, of course, should be the highest bid you can obtain!
The lender will also ask for financial information about the borrower. Sort of a backwards loan application, the borrower must prove that he is broke and unable to afford the payments. The borrower must show that he has no other source of income or assets to repay the loan. This process may involve as much, if not more paperwork than an original mortgage application! The borrower should submit a “hardship letter”, which is basically a sob story about how much financial trouble the borrower is in. This may require a little literary creativity, and some help on your part. Don’t lie, just paint a picture that doesn’t look good.
Finally, the lender generally wants to see a written contract between you and the seller. The lender wants to make sure the seller isn’t walking away with any cash from the deal. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the “net cash” to the seller is the exact amount of the short pay to the lender. A preliminary HUD-1 settlement statement is often requested, which can be difficult, since many title and escrow companies simple won’t prepare one in advance of closing. You can prepare your own HUD-1, and simply write “preliminary” on the top.
Don’t be surprised if your first short sale bid is rejected. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you steal. Many short sales fall through if the BPO comes in too high, which is often the case. You can’t pull the wool over a lender’s eyes – if the property isn’t is need of serious repair, it is unlikely you can convince the lender the property is worth a whole lot less than the appraised value.
The process of the short sale is not that complicated, but the success or failure of the deal depends upon how you present it to the lender. Many novice investors and realtors give up at short sales quickly because their first deal is rejected. Like any business, short sales takes practice to get good. Generally speaking, loss mitigators are pretty good at spotting an amateur investor. If you know what you are doing, the loss mitigators are more likely to make a deal with you.
Friday, October 16, 2009
Calculating retirement income from Rental properties
Whether you have a 401k or other retirement plan, income from a rental property can make your later years more enjoyable.
After finding one in your price range, the next step is calculating its cash flow. That means determining what your annual expenses will be and deducting them from the rent. The balance is ysour cash flow.
Depreciation sounds like an expense, but it is generally a tax advantage. On a $125,000 property, for example, the depreciation over 27 and one-half years comes to $3,636 per year. This is a tax deduction.
In the early years of your mortgage, interest will reduce earnings on the property so you won't have much of a profit. During this time, the depreciation comes in handy to reduce taxable income from other sources. In later years, it will reduce the amount of tax you pay on rental profits.
When you retire, you can use monthly rental income for normal expenses and travel.
Or you can sell the property and have a lump sum to use for something you always dreamed of, like a luxury RV in which to tour the country. In years to come, your property could double in value.
Some things to consider when looking for a rental property:
* Good location. Today, rents are rising and will continue to rise in stable neighborhoods. The location should be not too distant from where you live now.
* You can often buy a duplex for not much more than a single family home, and rents will be higher.
* Find a building that's not too old so it will comply with building, zoning, and fire codes. And it will have lower maintenance costs. Have it inspected.
* Have your real estate agent tip you off to a building with an out-of-town owner who is eager to sell. Sometimes such owners will take a two- or five-year contract for deed, which means a very small down payment. Be sure to visit http://ralphandTricia.com
After finding one in your price range, the next step is calculating its cash flow. That means determining what your annual expenses will be and deducting them from the rent. The balance is ysour cash flow.
Depreciation sounds like an expense, but it is generally a tax advantage. On a $125,000 property, for example, the depreciation over 27 and one-half years comes to $3,636 per year. This is a tax deduction.
In the early years of your mortgage, interest will reduce earnings on the property so you won't have much of a profit. During this time, the depreciation comes in handy to reduce taxable income from other sources. In later years, it will reduce the amount of tax you pay on rental profits.
When you retire, you can use monthly rental income for normal expenses and travel.
Or you can sell the property and have a lump sum to use for something you always dreamed of, like a luxury RV in which to tour the country. In years to come, your property could double in value.
Some things to consider when looking for a rental property:
* Good location. Today, rents are rising and will continue to rise in stable neighborhoods. The location should be not too distant from where you live now.
* You can often buy a duplex for not much more than a single family home, and rents will be higher.
* Find a building that's not too old so it will comply with building, zoning, and fire codes. And it will have lower maintenance costs. Have it inspected.
* Have your real estate agent tip you off to a building with an out-of-town owner who is eager to sell. Sometimes such owners will take a two- or five-year contract for deed, which means a very small down payment. Be sure to visit http://ralphandTricia.com
Saturday, October 10, 2009
Key indicators from Phoenix's Housing Market
There are some positive signs coming from metropolitan Phoenix housing market. Foreclosures dropped slightly in September while home prices inched up again.
Last month, lenders foreclosed on 3,759 Valley homes, an almost 5 percent drop from August, according to the Information Market. It's the second month in a row foreclosures, or trustee sales, have fallen. Pre-foreclosures also dropped in September, a good sign there will be another decline in foreclosures this month. There were 7,857 pre-foreclosures, or notice of trustee sales, filed by lenders last month. That's an 11 percent drop.
There's been a big push by the government and nonprofits for lenders to do more loan modifications, which could be behind the decline in foreclosures. Whatever the reason, at least for now, it means more people keeping their homes.
The median price of metro Phoenix home sales climbed to $130,000, according to Mike Orr's Cromfort Repord. The median a month ago was $127,000. Home prices, particularly in many of the Valley's edge communities have been slowly climbing since April, reports Orr, who analyzes Arizona Regional Multiple Listing Service data daily.
New Valley home prices are up as well. Real estate analyst RL Brown's Phoenix Housing Market Letter reports the median price of a new Valley home is at $197,948, after hitting a recent low of $184,750 in July.
However, home building fell after showing some gains in recent months. There were 6964 single-family housing permits issued Valleywide. Home sales overall were down slightly from August but are still well ahead of last's year pace.
Last month, lenders foreclosed on 3,759 Valley homes, an almost 5 percent drop from August, according to the Information Market. It's the second month in a row foreclosures, or trustee sales, have fallen. Pre-foreclosures also dropped in September, a good sign there will be another decline in foreclosures this month. There were 7,857 pre-foreclosures, or notice of trustee sales, filed by lenders last month. That's an 11 percent drop.
There's been a big push by the government and nonprofits for lenders to do more loan modifications, which could be behind the decline in foreclosures. Whatever the reason, at least for now, it means more people keeping their homes.
The median price of metro Phoenix home sales climbed to $130,000, according to Mike Orr's Cromfort Repord. The median a month ago was $127,000. Home prices, particularly in many of the Valley's edge communities have been slowly climbing since April, reports Orr, who analyzes Arizona Regional Multiple Listing Service data daily.
New Valley home prices are up as well. Real estate analyst RL Brown's Phoenix Housing Market Letter reports the median price of a new Valley home is at $197,948, after hitting a recent low of $184,750 in July.
However, home building fell after showing some gains in recent months. There were 6964 single-family housing permits issued Valleywide. Home sales overall were down slightly from August but are still well ahead of last's year pace.
HUD Properties, FHA & Title Seasoning
by William Bronchick
With HUD properties, title seasoning, FHA loans, and short sales, investors have had some confusion regarding the rules. This article will clarify all of these issues for you.
HUD is the United States Department of Housing and Urban Development, a government agency whose goal is to increase homeownership, support community development . The Federal Housing Administration (FHA), which is part of HUD, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States.
HUD and FHA come into play in three different scenarios in the investor/foreclosure arena.
HUD Foreclosed Properties
When a person gets an FHA loan, it is funded through a private lender and the loan is insured or backed by the Federal Housing Administration. When the loan is in default, FHA pays out the lender and take an assignment of the loan. When the property is foreclosed, it is owned by HUD. HUD then offers these properties for sale to both owner-occupants and investors. The properties are offered on the local MLS computer database, but you have to submit an offer through a HUD-approved real estate broker. The offer is made under a bid process, under which the HUD will either accept or reject your offer depending on what other offers are submitted. An investor can buy, hold, or flip these properties if their offer is accepted.
FHA Loans and Title Seasoning
Then second place HUD comes into play is the FHA loan. If a buyer of your property gets an FHA loan, there is a title seasoning requirement of 90 days. In other words, if you are selling the property to an FHA buyer, you must have title recorded in your name for 90 days before the closing and funding of the FHA loan. This precludes you from doing a double-closing or a short term (less then 90 days) flip.
Keep in mind that the 90 day seasoning rule has nothing to do with HUD-owned properties as described above. In other words, you can buy a HUD property and flip it 3 minutes later so long as your end-buyer is not using FHA financing.
The third place HUD comes into play is if you are working on a foreclosure short sale on a property that has an FHA loan. In this case the Federal Housing Administration is insuring the loan and must approve the short sale. You can buy a property with an FHA loan on it, then flip it without a title seasoning issue, unless your end-buyer is getting an new FHA loan.
In summary, don't confuse the FHA new loan 90-day title seasoning requirement with the two other scenarios, HUD-owned properties and and existing FHA-insured properties. For more information on HUD properties and FHA loans, visit www.hud.gov.
http://www.ralphandtricia.com/
With HUD properties, title seasoning, FHA loans, and short sales, investors have had some confusion regarding the rules. This article will clarify all of these issues for you.
HUD is the United States Department of Housing and Urban Development, a government agency whose goal is to increase homeownership, support community development . The Federal Housing Administration (FHA), which is part of HUD, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States.
HUD and FHA come into play in three different scenarios in the investor/foreclosure arena.
HUD Foreclosed Properties
When a person gets an FHA loan, it is funded through a private lender and the loan is insured or backed by the Federal Housing Administration. When the loan is in default, FHA pays out the lender and take an assignment of the loan. When the property is foreclosed, it is owned by HUD. HUD then offers these properties for sale to both owner-occupants and investors. The properties are offered on the local MLS computer database, but you have to submit an offer through a HUD-approved real estate broker. The offer is made under a bid process, under which the HUD will either accept or reject your offer depending on what other offers are submitted. An investor can buy, hold, or flip these properties if their offer is accepted.
FHA Loans and Title Seasoning
Then second place HUD comes into play is the FHA loan. If a buyer of your property gets an FHA loan, there is a title seasoning requirement of 90 days. In other words, if you are selling the property to an FHA buyer, you must have title recorded in your name for 90 days before the closing and funding of the FHA loan. This precludes you from doing a double-closing or a short term (less then 90 days) flip.
Keep in mind that the 90 day seasoning rule has nothing to do with HUD-owned properties as described above. In other words, you can buy a HUD property and flip it 3 minutes later so long as your end-buyer is not using FHA financing.
The third place HUD comes into play is if you are working on a foreclosure short sale on a property that has an FHA loan. In this case the Federal Housing Administration is insuring the loan and must approve the short sale. You can buy a property with an FHA loan on it, then flip it without a title seasoning issue, unless your end-buyer is getting an new FHA loan.
In summary, don't confuse the FHA new loan 90-day title seasoning requirement with the two other scenarios, HUD-owned properties and and existing FHA-insured properties. For more information on HUD properties and FHA loans, visit www.hud.gov.
http://www.ralphandtricia.com/
FHA steps up to serve first-time homeowners, more . .
First-time buyers and those who have lower to middle income have an old way, now turned new, to find a mortgage. In the Phoenix Arizona real estate market FHA is becoming the mortgage of choice.
Many are turning to federally-backed Federal Housing Administration (FHA) loans. Mortgage applications increased from 41,530 in December 2006 to 73,444 in June of this year.
When the FHA was established in 1934, it copyright 2008 PAGES Editorial Service buyers to get a home of their own. In 1934 it was difficult to get a home loan because many banks required a down payment of up to one-half of a home's purchase price.
Today, FHA requires a 3.5 percent loan down payment.
As many mortgage companies came up with innovative financing plans for home buyers in recent years, the number of buyers turning to FHA fell significantly. Though there are still some nothing-down loans available from mortgage companies, most require the buyer to have a high credit rating and above-average income to get one.
While the FHA system needs some updating, it still works for many people. One of its flaws is the current maximum for a single-family home, which is $362,790. In San Francisco, however, the average home price is $748,100, according to the National Association of Realtors. Buyers in the Phoenix Metro are able to find some very nice housing that fits into that range.
Because some lenders don't care to deal with FHA paperwork, usually a mortgage broker handles the loan. It usually takes from 90 to 120 days to get approval. Buyers should know what the entire cost of the mortgage will be including the broker's fee.
Meg Burns, FHA's director of the Office of Single Family Program Development says, "Given how many borrowers really could benefit from FHA financing but how few of them do, I would say we are still in the doldrums."
The FHA is anticipating more applications as mortgage companies continue to make requirements more stringent.
To learn more about FHA and other Real Estate questions visit us at
http://www.ralphandtricia.com/
Many are turning to federally-backed Federal Housing Administration (FHA) loans. Mortgage applications increased from 41,530 in December 2006 to 73,444 in June of this year.
When the FHA was established in 1934, it copyright 2008 PAGES Editorial Service buyers to get a home of their own. In 1934 it was difficult to get a home loan because many banks required a down payment of up to one-half of a home's purchase price.
Today, FHA requires a 3.5 percent loan down payment.
As many mortgage companies came up with innovative financing plans for home buyers in recent years, the number of buyers turning to FHA fell significantly. Though there are still some nothing-down loans available from mortgage companies, most require the buyer to have a high credit rating and above-average income to get one.
While the FHA system needs some updating, it still works for many people. One of its flaws is the current maximum for a single-family home, which is $362,790. In San Francisco, however, the average home price is $748,100, according to the National Association of Realtors. Buyers in the Phoenix Metro are able to find some very nice housing that fits into that range.
Because some lenders don't care to deal with FHA paperwork, usually a mortgage broker handles the loan. It usually takes from 90 to 120 days to get approval. Buyers should know what the entire cost of the mortgage will be including the broker's fee.
Meg Burns, FHA's director of the Office of Single Family Program Development says, "Given how many borrowers really could benefit from FHA financing but how few of them do, I would say we are still in the doldrums."
The FHA is anticipating more applications as mortgage companies continue to make requirements more stringent.
To learn more about FHA and other Real Estate questions visit us at
http://www.ralphandtricia.com/
Wednesday, October 7, 2009
I found this fascinating quote today:
As the, so far, jobless recovery continues, the White House is reportedly hunkered down trying to figure out what to do next. Obama administration officials are taking note of programs that have worked and those that have not done as well. biggerpockets.com, First Time Home Owner Tax Credit Likely To Stay; But Current Homeowners Still Face Uncertain Future, Oct 2009
You should read the whole article.
Tuesday, October 6, 2009
Are Short Sales and Foreclosures Your Path to Riches?
There are hundreds of properties in the Phoenix Metro approaching foreclosure and homebuyers and investors are seeking the best deal towards pursuing short sales. Our current real estate market has no doubt seen better days and investors know short sales are a sure path to big profits.
While we get this ideal picture in our heads of locating the perfect house, purchasing and either flipping for profit can be far from the truth. Before approaching the idea of investing in short sales and foreclosures you should take caution and fully understand how the process works.
Short Sales
In a conventional home sale, the property is sold for enough money to pay off the existing mortgage or mortgages, and to pay the sellers’ closing costs. When the mortgage amount plus closing costs equal more than the selling price, the sellers are “short” the amount needed to close the sale.
Sellers with sufficient financial resources can use money from other sources such as savings, to pay the amount they are deficient and complete the sale. Sellers unable to do this may convince their lender to accept a loan payoff that is less than the amount owed. A “short sale” refers to a sale where the lender agrees to accept a reduced loan payoff. Some lenders call this a “workout.”
Wondering why a lender would agree to accept less than full payment? Today most lenders will accept a BIG deduction because their books are full of foreclosed homes or homes steadily approaching that phase. These lenders would prefer to clear the loan from their books, even at a loss. When a borrower becomes delinquent on loan payments the lender is often faced with a foreclosure procedure, which is very costly.
Negotiating with the lender can be difficult. Many lenders will not consider a short sale until the property is marketed and the sellers are sure they cannot sell for enough to pay the loan off completely.
Anyone purchasing a short sale will need a lot of patience. This process usually takes time and will require persistent savvy negotiation on the part of the sellers and their agent.
You probably will have more difficulty negotiating the price on a short sale property than on a property where the sellers are making a profit. But even though the lender will want the highest price possible to minimize their losses, they usually have a strong motivation to sell. If they didn’t have an urgent need to sell NOW, they would just wait for the market to improve.
Foreclosures
Sellers who are selling short are probably not current on their mortgage and are in financial disarray however they are taking measures to appropriately sell their house and maintain some level of credit worthiness. A foreclosure on the other hand is a completely distressed sale that occurs when there is no hope of the owners saving their home or negotiating fair terms with the lender.
Several types of foreclosure proceedings exist and state law governs the specifics of how foreclosures are handled. Often foreclosed properties are sold to the highest bidder. Those properties not sold off to a new owner revert to the lender and are called REOs – real estate owned. REOs are often listed for sale through a real estate broker, but sometimes lenders have an inventory of REOs that are not actively marketed.
You could get a good deal purchasing a foreclosure property, but buying foreclosures like fixer-uppers, requires hard work and thorough research. Often touted as a quick way to get rich, you can just as easily lose your shirt on foreclosures. You need lots of hand-holding from an experienced realtor.
If property values have dropped since the property was purchased, the remaining loan balance could exceed the market value of the property. So you may end up not getting a great break on the price.
Some foreclosures are sold “as-is” regarding property condition. If this is the case, make sure to have the property thoroughly inspected before you make an offer. A distressed sale property is most likely in bad condition.
Both types of purchases can be a good investment for a buyer with patience and those willing to put in a little time and research. See our articles at Are http://www.ralphandtricia.com/randt.rss.txt
While we get this ideal picture in our heads of locating the perfect house, purchasing and either flipping for profit can be far from the truth. Before approaching the idea of investing in short sales and foreclosures you should take caution and fully understand how the process works.
Short Sales
In a conventional home sale, the property is sold for enough money to pay off the existing mortgage or mortgages, and to pay the sellers’ closing costs. When the mortgage amount plus closing costs equal more than the selling price, the sellers are “short” the amount needed to close the sale.
Sellers with sufficient financial resources can use money from other sources such as savings, to pay the amount they are deficient and complete the sale. Sellers unable to do this may convince their lender to accept a loan payoff that is less than the amount owed. A “short sale” refers to a sale where the lender agrees to accept a reduced loan payoff. Some lenders call this a “workout.”
Wondering why a lender would agree to accept less than full payment? Today most lenders will accept a BIG deduction because their books are full of foreclosed homes or homes steadily approaching that phase. These lenders would prefer to clear the loan from their books, even at a loss. When a borrower becomes delinquent on loan payments the lender is often faced with a foreclosure procedure, which is very costly.
Negotiating with the lender can be difficult. Many lenders will not consider a short sale until the property is marketed and the sellers are sure they cannot sell for enough to pay the loan off completely.
Anyone purchasing a short sale will need a lot of patience. This process usually takes time and will require persistent savvy negotiation on the part of the sellers and their agent.
You probably will have more difficulty negotiating the price on a short sale property than on a property where the sellers are making a profit. But even though the lender will want the highest price possible to minimize their losses, they usually have a strong motivation to sell. If they didn’t have an urgent need to sell NOW, they would just wait for the market to improve.
Foreclosures
Sellers who are selling short are probably not current on their mortgage and are in financial disarray however they are taking measures to appropriately sell their house and maintain some level of credit worthiness. A foreclosure on the other hand is a completely distressed sale that occurs when there is no hope of the owners saving their home or negotiating fair terms with the lender.
Several types of foreclosure proceedings exist and state law governs the specifics of how foreclosures are handled. Often foreclosed properties are sold to the highest bidder. Those properties not sold off to a new owner revert to the lender and are called REOs – real estate owned. REOs are often listed for sale through a real estate broker, but sometimes lenders have an inventory of REOs that are not actively marketed.
You could get a good deal purchasing a foreclosure property, but buying foreclosures like fixer-uppers, requires hard work and thorough research. Often touted as a quick way to get rich, you can just as easily lose your shirt on foreclosures. You need lots of hand-holding from an experienced realtor.
If property values have dropped since the property was purchased, the remaining loan balance could exceed the market value of the property. So you may end up not getting a great break on the price.
Some foreclosures are sold “as-is” regarding property condition. If this is the case, make sure to have the property thoroughly inspected before you make an offer. A distressed sale property is most likely in bad condition.
Both types of purchases can be a good investment for a buyer with patience and those willing to put in a little time and research. See our articles at Are http://www.ralphandtricia.com/randt.rss.txt
Monday, September 14, 2009
It's Time to Invest in Real Estate
James B. Stewart (as published in SmartMoney September 1, 2009)
Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate — with all properties offering water views. During the ride to my hotel, the young driver volunteered that he'd just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that had last sold for over $250,000. He said he'd never expected to be able to buy anything on a driver’s salary, let alone something that nice.
Last week, Standard & Poor’s reported that its S&P/Case-Shiller U.S. National Home Price index of real estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.
In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There’s no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free fall. That means if you've been sitting on the fence, it’s time to act.
Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real estate prices nationally now down about 30% from their 2006 peak, and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than right now.
In addition to bargain prices, buyers should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren't going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.
Unless you’re really prepared to accept the demands (and headaches) of being a landlord, I don't recommend direct ownership of real estate as an investment. The days of buyers lining up to buy and flip Miami Beach and Las Vegas condos are mercifully gone. There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot (HD)). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.
But there’s a good reason home ownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives
Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate — with all properties offering water views. During the ride to my hotel, the young driver volunteered that he'd just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that had last sold for over $250,000. He said he'd never expected to be able to buy anything on a driver’s salary, let alone something that nice.
Last week, Standard & Poor’s reported that its S&P/Case-Shiller U.S. National Home Price index of real estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.
In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There’s no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free fall. That means if you've been sitting on the fence, it’s time to act.
Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real estate prices nationally now down about 30% from their 2006 peak, and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than right now.
In addition to bargain prices, buyers should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren't going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.
Unless you’re really prepared to accept the demands (and headaches) of being a landlord, I don't recommend direct ownership of real estate as an investment. The days of buyers lining up to buy and flip Miami Beach and Las Vegas condos are mercifully gone. There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot (HD)). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.
But there’s a good reason home ownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives
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