My Pinole Real Estate

Selling a property in this tough market can seem like a challenge. Here are four factors that actually make this a good time to post a For-Sale sign.

1. Sell low and buy low. Because all property values are down, the sellers’ loss on a property is really only a paper loss because the next property they buy also will be a bargain. If they buy smartly, when prices come back up in a few years, they’ll be in better shape.

2. Down-payment help is widely available. While nothing-down loans have disappeared, it is easy to find down-payment assistance for lower-income and first-time home buyers. Programs vary all over the country, but one good way to find them is to search online for “down-payment assistance programs” and the name of your region.

3. Your uncle has money to share. Besides the $8,000 first-time home buyer tax credit and the $6,500 move-up credit, there are an array of energy tax credits that can make home improvements pay off in cash.

4. Good help is available. Really talented real estate practitioners, contractors, and designers are available and eager for business.

Source: McClatchy Tribune, Kate Forgach (02/07/2010)

Strong gains in existing-home sales were the predominant pattern in most states during the fourth quarter, with many more metro areas seeing prices rise from a year earlier, according to the latest survey by the NATIONAL ASSOCIATION of REALTORS®.

Sales increased from the third quarter in 48 states and the District of Columbia; 32 states even saw double-digit gains.

Year-over-year sales were higher in 49 states and D.C.; all but three states had double-digit annual increases.

Total state existing-home sales, including single-family and condo, jumped 13.9 percent to a seasonally adjusted annual rate of 6.03 million in the fourth quarter from 5.29 million in the third quarter, and are 27.2 percent above the 4.74 million-unit level in the fourth quarter of 2008.

Distressed property accounted for 32 percent of fourth quarter transactions, down from 37 percent a year earlier.

The Tax Credit Affect

Lawrence Yun, NAR chief economist, said the first-time home buyer tax credit was the dominant factor.

For many deciding to buy a home is an exciting and proud moment. Whether it’s your first or third home, the likely scenario is you don’t know what to do first or you don’t remember what you should do first. I can’t tell you how many times I’ve received phone calls from prospective buyers who, when I start asking them questions about financing, closing costs, repair costs, say, “I don’t know,” or , “I haven’t done that yet.” Talk about putting the cart before the horse!

Most of the time I start out with the requirement that they get their financing in place before we start actively looking for a home but in fact there is a lot to think about before you even decide if buying a home is a good idea for you.

THINK ABOUT YOUR DECISION!

1. In today’s housing market, buyers need to think long term. If you cannot safely say you will be living in your home for 7 years or more, it’s not a good idea to buy.  It’s likely that a slow or depressed trend in housing is going to continue for a few more years. If you suddenly had to move or are thinking of starting a family and needed to sell, you would most likely not recoup your costs if you sell within those seven years. The one caveat to that sentiment is that if you could rent your home for as much as or more than your total payment, that would be a good option. However, most people use their equity from their existing home when they sell to put down on another home. You will not be able to do that for a while as no one is doing seconds on homes when the first is over 65% loan to value.

2. Where do you really want to live? Of course price is always a factor in purchasing your home. Consider what you have to pay for a home and know where you can afford to buy. Visit those areas extensively and decide where you will be happy living. If you won’t be happy living where you can afford to buy then don’t. Keep saving your money. But if you will be happy, be specific. When I was buying my last home, I had specific zip codes where I wanted to live and I told my Realtor to only send me listings in these zip codes.

3. How much can you really afford? This is a very important. BE REALISTIC!The money to buy a home is not just your down payment. Closing costs can be somewhere between 3-4% of the purchase price of the house.  Many cities and counties have point of sale ordinances that are the buyers responsibility in this market. A sewer lateral replacement can cost up to $4,000 and must be done within a certain time period after the sale. If you are buying a foreclosure, it’s likely the condition will be poor and repairs will be needed. Assume you will need at least $5,000 in reserve money for repairs to the home.

4.  Find a good agentwho you can work well with, whom you trust, and who knows the local market. Be willing to trust their knowledge. Being a realtor myself, I can’t tell you how important this last point is. I can’t tell you how many times I’ve received calls from people who are looking for homes but who refuse to work directly with an agent. They drive around and call when they see a property they like. What a waste of time! That’s the Realtors’ job. Realtors make sure you are getting the listings that match your criteria. I’ve also had conversations with prospective clients who don’t want to hear what I have to say about pricing and writing offers. I have refused to write offers for people who won’t listen to me. I had a client the other day want to offer $55,000 on a house listed for $65,000. I told him he would have to offer at least $80,000 to be competitive. I have confirmed that all 8 offers that were received were at least $20,000 over asking.

5. Keep your options open!Most people think that in today’s market, the deals are the foreclosures but that’s not necessarily true. For people purchasing with cash or large down payments, foreclosures may the right purchase for them. Keep in mind that these home are in poor condition generally and need a lot of work. For most home buyers, you’re goal is to purchase your first home, not your first project. Additionally, if you are using an FHA (Federal Housing Administration) loan to purchase, you will be limited to homes in relatively good condition. Short sales are becoming a good option too as more of them are closing and with less wait time.

1. REO/ Foreclosure

REO stands for Real Estate Owned and is a foreclosed property that goes back to the mortgage company after an unsuccessful foreclosure auction.

 2. Short Sale

A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.

 3. BPO (Broker Price Opinion)

A BPO is like a Comparable Market Analysis (CMA). Banks pay local Agents to give their ‘opinion’ on how much a house would sell for, using comparable Sold, Pending, and Active listings.

 4. PMI

Private mortgage insurance is required by the mortgage company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

 5. LTV

Loan-to-value is the percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower). For example: you purchase a home for $100,000 and you get a mortgage for $90,000. Your loan-to-value is 90%, therefore, the mortgage company would require PMI. 

7. ARM

Adjustable Rate Mortgage is a mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes. There is usually a cap (ceiling) on the amount to which the interest rate can increase.

 6. Negative Amortization

Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment, it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment. The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

•  Beginning Feb. 1, buyers may use FHA-insured financing to purchase properties resold through private developers and investors. 

•  Borrowers with credit-rating scores below 580 will be required to put down at least 10 percent. Those with a credit score above 580 will be able to continue to put down only 3.5 percent.

• The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent.

• Seller concessions will be reduced to 3 percent from 6 percent.

In this market, there are a high number of investors who are buying real estate for cash in this extremely opportunistic market. Many people are buying homes in extremely bad condition, fixing them up and then selling them again. There is one aspect to this process that I would like to suggest. Become the bank! Let’s say you decide to buy a house for cash and then fix it up. You have three options, live in it, rent it, or sell it. It’s likely that you want to rent it or sell it. One of the biggest impediments to selling is a loan for the prospective buyer. It will most likely be an FHA or conventional loan but something could go wrong.

What if you offered seller financing?

Suddenly you open up your buyer pool substantially. I know what your thinking! What if they default??? OK let’s back up. First, you find a buyer, then you do your due diligence. Do they have a job? How many years? What’s their income how much do they have in savings, check their credit. So the point is you won’t be as conservative as the bank but you’re still going to be smart. I would recommend at least a 5% down payment. You use a title and escrow company to complete the transaction. Everything is recorded, legal and on the books. The buyer then starts sending you his payment. Here’s an example. Let’s say you buy a house for $100k cash and you fix it up and it’s now worth $200k. You decide to sell it to a buyer with seller financing.  After your due diligence, the buyer puts $10,000 down and you finance $190,000. The monthly payment is as follows (assumes a 6% interest rate):  Principal and Interest $1,133.48. This is your income. You may say this is less than I would receive in rent, but remember you just received $10,000 up front. Your income for the first year is $23,601.76.

Even if the buyer defaults after the first year, you will still be positive in income and you can sell it again. Most attorney’s will give you a flat rate for a basic foreclosure. Additionally, the legal fees are tax deductible. Even if you have to re-carpet, paint and put in new appliances, it’s still a great deal. I think the benefits out-way the deficits.

Benefits

1. Increase your buyer pool.
2. More flexible than a bank.
3. Use short or long term financing.
4. Be in first position.
5. Charge higher than market rate interest rate.
6. No appraisal required.
7. Someone else is responsible for taxes, insurance, and maintenance.
8. If they default, you get the property back.
9. Legal fees are tax deductible.

Deficits

1. Buyer could default.
2. Buyer may not maintain the property.
3. Potential legal fees for a foreclosure.
4. Possible tax consequences for income.

We are in an interesting situation in the bay area. There is now a lack of inventory on the market and there are a number of buyers waiting for homes to come on the market that want to buy desperately. There is currently a moratorium on foreclosures that has been enacted since June 15 which requires the banks to show that they have worked diligently with home owners and offered them an extensive workout package before they proceed to foreclosure. This law along with previous laws and encouragement from state and federal government have slowed the number of homes coming on the market to a dribble. The low prices that are unprecedented along with low interest rates has encouraged buyers to enter the market. We now are in a sellers’ market.  Now obviously this does not mean that you can price your house at an above market amount and expect to get that price, but it does mean that if you meet certain criteria, you are in a position to capitalize on the current market conditions and meet or exceed the national average of home appreciation over a 10 year period.

1. The first criteria you need to meet is that you’ve owned the home for at least 10 years. On average, a home will double in value over a 10 year period. This means that if you bought your home for $100,000 in 1999, it will be worth approximately $200,000 today. Of course this is a national average and does not account for flexibility in local assets so of course you will need to talk with a local real estate agent to determine the current value of the home.

2. Additionally you cannot have over mortgaged your home. Many home owners took advantage of the high appreciation over the last 10 years and have mortgaged their homes up to the unrealistic values of 5 years ago. In many cases, home owners took out additional mortgages up to 100% of the value of the home. Additionally, the money was not used to maintain the home and instead was used for personal consumption. If you bought your home for $100,000 ten years ago, you should not have used more that 30% of that value. If that is the case, you will be in a good position to sell.

3. The third requirement is that you must have maintained your home. If you have let your home fall into disrepair and there is a lot of deferred maintenance required, you will have to price your home extremely low to attract a buyer. There are a couple of reasons for this. Your home rather than standing alone, is now competing with foreclosure homes. These homes are for the most part in terrible condition. Many must be purchased with cash or financed with a heavy cash down payment. If your home, due to it’s condition will not qualify for all types of financing available, it will not demand top pricing.

4. The forth condition you must meet is that your home must have some sort of attractive asset other than it’s condition. If you live in a great school district, have an amazing view or live on a cul de sac in an area known for home ownership or safety or something similar to these qualifications, you are in a great position to sell your home.

5. The last and most important criteria is that you must be willing to show your home in the most stunning way possible. This means it must look model perfect or as close to it as possible. Staging is a must and can be done relatively inexpensively. You must be willing to paint and repair everything down to the smallest detail. This includes replacing light switch covers, changing those out-dated light fixtures, and keeping the home spotless.

These five requirements will ensure that you will sell your home for the maximum price possible in this current market. I’ve heard a lot of people say, “I’m waiting until the market turns around.” In my neighborhood, home values are approximately $400,000. About 4-5 years ago, they were $600-$700,000. $400,000 is a fair price for the age of the homes. So if you want to “wait for the market to turn around,” you will be waiting about 5-10 more years to realize the “fake” values of 5 years ago.  If you are not ready to sell now then of course this makes sense. But if you need to sell now, if you can meet the above criteria; you will be pleased with the result.

1. Decide exactly what you want.

2. Determine what you will give in return for that which you desire.

3. What is your definite date by which you will possess this desire?

4. Create a plan to carry out your desire and begin at once.

5. Write it out. Describe your desire, the length of time it will take to possess it, the plan of action and what    you intenet to give in return.

6. Read it aloud twice daily, once in the morning in the morning and again before bedtime.

7. Creat a visual and post it where you will see it often.

Being thankful is especially valuable in challenging times. Gratitude is actually medically proven to lift our spirits and improve our health. Discover how a little gratitude can create a lot of happiness in our lives by following these eight simple steps. They are not difficult and they yield amazing results.
1. Find What You’re Grateful For
The real uncertainty we face about our economic future can make us quite fearful and sad. Locating those things for which we can still be grateful, brings joy even in the face of those challenges without pretending they are not real.
2. Articulate It
Tell a friend or loved one a story about something for which you are grateful. Don’t be surprised to find yourself smiling by the end of that story.
3. There ’s Always More to Be Grateful For
Consider the difference between wealth and value. While material wealth is important, it is not the only source of real value in our lives. We can all celebrate value, even when the material wealth in our lives is taking a beating.
4. Wealth Begins Within
An ancient teaching reminds us that we are wealthy when we are happy with what we possess.
5. Happiness and Satisfaction Are Different
We can want more than we currently have and still be happy with what we’ve got. Wanting more does not have to get in the way of enjoying what we already have. If it does, we will never have enough.
6. It’s All Relative
A person who lives in a $100,000 house in a neighborhood of $75,000 homes experiences living in a mansion. The same house in a neighborhood of $500,000 homes may feel like a hovel.
7. Help Yourself by Helping Others
Helping others address their needs is one of the best ways to relieve the anxiety we may feel about our own.
8. We All Have Something to Give
No matter how difficult our circumstances may be, we can all offer support to those around us. Whether it’s a penny, a dollar, or much more, the act of giving always makes us feel as if we have more than we thought.

If you have equity in your home, now may be the time for you to buy investment property. Although home values have decrease precipitiously in the past few years, if you have owned your home for more than ten years, chances are you have  solid appreciation right now. Since home values are the lowest they’ve been in recent years, you can use some of that appreciation you’ve built up and be fairly certain that the value of your home is not going to drop much more. Also, if you stick to borrowing only up to 50% of the total value of your home, you will still have a lot of wiggle room if values do drop a little more.

Did you know that you can actually gain wealth faster by investing your home’s equity even if you are only receiving the same return on your money as you are paying in interest on your mortgage due to tax write-offs on mortgages?

Lets assume an investment of 20% on a property (20% down payment), and that the property increases in value at an average rate of 4% annually, that translates into a 20% annual rate of return for the amount invested. With property value increases in the double digits as we have seen in recent years, it is not uncommon to see annual rate of return on investments above 50%.

As with any other investment strategies, there are risks associated with cashing out home equity. However, one can minimize some of the risks. By making certain that he can afford the new, increased mortgage payments without depending on the income from the investment, the homeowner would not be in a financial tight spot regardless how his investment performs in the short term.

Property values are such that if you purchase a rental property with 20% down, the potential cash flow is extremely attractive. For many years, cash flow was almost non existent with rental property unless the investor put about 40-50% down. Now, unless you can document your cash flow, don’t buy the property.