1) Buying now may be a very good investment. The rental market appears to be holding if you want to buy an investment property. In fact, where price are today, and you have the resources, small multiples (duplex, triplex, fourplex) may be something to consider. They are priced incredible well, usually there are already tenants in place that provide immediate income, and there are good management companies that are affordable given the excellent cash flow that these properties can provide. You can expect 10% return (or possibly more) on your investment or more when you select the right property after all of your expenses, including ther mortgage payment.

2) Interest rates are low. They look to stay low for some time. Those who have equity in their homes have a tremendous opportunity to reduce their mortgage payment significantly. The saving engendered can be used for other expenses, paying down debt, or accelerating your mortgage payment and pay off the home much much earlier. It is worth the time to contact a lender to find out if it makes sense for you. One thing to remember, though; you current lender will not be particularly excited about refinancing your mortgage if you are current in your payments. You may have to change lenders in order to get your new rate.

3) Homebuyers can now take advantage of some very attractive home prices if they are willing to do a little work or have it done prior to moving in. Some homes in very nice neighborhoods are in rough shape and have been discounted heavily by the Seller in order to get them sold. The FHA 203(K) program allows the Buyer to finance the needed repairs into the loan and get them done. It is a standard FHA loan that requires 3.5% down payment, but opens up a large number of homes that had not been available to other FHA programs.

Call us if you have any questions regarding these or any other Real Estate topics at 925-308-7045 ot via email at caseteam@interorealestate.com

http://www.latimes.com/business/la-fi-countrywide-20100824,0,5710799.story

1) When in a short sale, continue to pay the mortgage. There are no words to describe how wrong this idea is. The ‘theory’ behind this is that if you continue to pay your mortgage, the bank will want to work with you. Let me pose this idea, what incentive does the bank have to take less than what is owed on the mortgage when the mortgagee is paying it on time? Well, the answer is pretty simple, NONE. Anyone, including a financial institution will only work in this situation to limit the loss they are going to take. If you are paying your mortgage, they are not losing anything. The reason you have to sell your home short is because you cannot afford it. Paying the mortgage during the short sale process will delay and possibly deny the completion of the sale. This idea was proposed recently by a real estate agent. Be careful to listen to what even the ‘experts’ say.

2) It’s Okay to invest in properties and take a negative monthly income. This idea came about during the meteoric rise in Real Estate prices during the recent bubble. I have a better idea; give me the money you lose every month. Seriously, if you make an investment, you should expect a return on it. If you purchase a CD from a financial institution, do you not expect a monthly return? Real Estate investments should provide a return in line with the risk one takes for owning real estate. The risks include, damage, maintenance, loss of income on vacancies, and the like. Using this guideline, you should expect 13 to 15% return on your money invested. Using a spreadsheet that calculates your costs, income, etc., today’s market provides a large number of candidate properties that will give you this or a higher return.

3) Your home is your biggest investment. While there are a large number of financial and other benefits to owning a home, it fails horribly as an investment. Referring to the idea above, you must expect income from your investment. You get no income from your home. You may get some tax write-offs, the feeling that you own something of value, but it returns nothing on an investment basis. It is this idea that has put so many homeowners into the situation that we have today. As prices went up, many people treated their homes as a super sized credit card. The equity that they had gotten from the rise in prices generally (in fact, there is no real equity until such time as you sell the property) was used for purchases of home improvements, new cars, boats, vacations, and the like. Once the values declined, the property was well over-leveraged to its value. In other words, if it was and investment, it is now. Rental property is investment, your home is where you go at the end of the day to relax and raise your family, to redesign it into the environment that pleases you the most. It does not give you income until you move out.

4) You will be no better off due to a foreclosure than through a short sale. Many times you will hear this and I have no idea where this started. A foreclosure will tie up you credit for all things for a minimum of 7 years. If you short sell your home it will only be 2 to 3 years where your credit will be impacted. I cannot think of any situation where a foreclosure is the same or preferable.

5) Prices will recover quickly so you need to buy as soon as you can. There is a lot of hopeful or wishful thinking in this sentence and I would suspect that it was started by Realtors. However, there is no economic basis for this statement. As long as the economy continues as it is, there does not look like price advances are in the near term. What does need to be looked at when purchasing property, especially your home, is the interest rate on your mortgage. Right now, interest rates are as low as you may expect them to be for some time and into the foreseeable future. Out suggestion if you are looking to buy now is to select the property that best suits your lifestyle and budget. You cannot go wrong with that approach.

These are the bad ideas that look to be the most important to our clients, although there are probably hundreds more. If you have any questions, comments, or good ideas, please contact us at 925-308-7045.

This article was also posted in our monthly newsletter which is emailed to our subscription list on the first Monday of each month. To subscribe, please contact us at caseteam@interorealestate.com 

Thanks!

….and now for the ugly truth!…….

I have always felt that the truth was my friend, as it knew where I stood with the real world. We sometimes do not like to tell the truth as we may be afraid that it might hurt someone, or hide something from some that would be to our disadvantage. These are forms of lies, which hurt us so much more over time. As a real estate professional, I must tell the truth, whch includes not only those things that may not work to my advantage, but also to not answer things that I do not know, which is a lot, I must say.

This article is to tell the truth about the real estate market, which I do not think is ugly, although the wording sometimes does stop the bleeding, if only for a little while.

TRUTH 1 – WE ARE IN ONE OF THE BEST MARKETS FOR BUYING REAL ESTATE.

How can this be? With people losing their homes, taxes increasing, job losses that are real and may be worse? And you are telling me that this is a good time to buy?

Yes, this is true. Interest rates are low (as low as they have been in decades). Rates on borrowed money are the major component of mortgage cost and this is something the Buyer can control now. Home prices are at decade low prices and well. When this is combined with low interest rates the case for buying versus renting is made. In many cases, the mortgage payment is higher than the rent it would cost to lease.

TRUTH 2 – BUYING A HOME IS NOT AN INVESTMENT

When you buy an investment, such a a CD or mutual fund, you expect a return on your money in the form of a dividend or interest. Buying a home to live in provides neither. In fact, there are additional costs incurred such as taxes, maintenance, utilities, repairs, and the like. No rent is received, in fact if you have a mortgage, you are paying more and more and while the interest is deductible, only to your marginal tax bracket. However, it is your place in the sun, where you can go to at the end of the workday and relax knowing it is yours; your own personal paradise away from the workaday world. There is a lot of value in that and that is the American Dream.

However, purchasing real estate for investment; that is real estate in which you do not live, is an investment which right now is a potentially lucrative one. Rent will almost certainly be significant higher than the mortgage. Mortgage rates are low, as said above, and higher down payments make smaller loans. The maintenance and repair are tax deductible and the standard depreciation you can take on an investment property is also deducted each year, if you choose.

So despite the fact that your home is not an investment is not a reason not to buy. If you have questions on this, I’m always available to discuss.

TRUTH 3 – HOME PRICES MAY GO DOWN FURTHER

This truth is more of a prediction than a truth, but indication are that it may not be far off the mark. The actual thing that the property buyer should think about is what that may mean down the road. If you are a homebuyer, you may want to consider the risk of buying a home if there is fear that you may have to sell within 10 years. If you are happy with your property and can afford the payments, additionally if you have no reason to move, the value of your home in inconsequential. If you are an investor, the income you derive from the property is more important than the sales price, until it is time to make a change for tax reasons, or better opportunities.

TRUTH 4 – CREDIT AND LOANS ARE HARD TO GET

This truth is not a truth but common knowledge. It is true that credit is more difficult to get than 5 years ago, or even 2 years ago. In fact, the documentation required to obtain credit is more of a burden to the borrower, but it is similar to the process before the creative (stated income, variable rate, etc.) loan process began in the mid 90s.

Some banks have little incentive to loan today. They can get money at nearly 0% interest from the government and purchase treasuries at 3% with no risk. With the current conventional loan rate (30 year fixed loan with 20% down) near 4.65%, you must prove the fact that you are not a risky borrower.

The property buyer does have options, of course. Mortgage brokers have many investors that they deal wit (including the big banks) that have money to loan. While the process is more onerous than 5 years ago, you can get a loan at a great rate if you credit scores meet the needs of the lender.

Truth 5 – THIS IS A TERRIBLE TIME TO SELL

This truth may be ugly, if you are compelled to sell your home because you have lost a job, been transferred to another location, or other circumstances that force you to sell. However, the banks are incented to help you get out of your home with as much grace as is possible, first through the load modification process and if that does not work, the short sale process. Nobody likes to be forced to sell their home, but this is true in all markets. Today’s market allows a more graceful exit than one might think.

If you want to sell because you think you are paying too much given the value of the home, you are under the belief that your home is an investment and should reread the first two truths. When you entered into your purchase contract, you had the chance to ask any question about the loan you wanted. A good agent would have directed you to understand the terms of the loan. No one, unfortunately, has a crytal ball to look into the future to see how much value your home would gain in the future. This truth may be ugly, but it is the truth. So many people bought home during the meteorica rise of  2003 to 2006 for the capital appreciation rather than for homes or income, we all began to confuse what traditionally has been a long term capital asset into a short term trading asset. When we confuse an asset for something that it is not, disaster is the ultimate end.

These ugly truths are not all that ugly, I think. However, if you thin kthese truths are really ugly, please let me know. I always like to see a differing opinion, it may also change mine,…and that is the ugly truth.

According to the Franchise Tax Board’s website, here are the details:

These tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011. Additionally, these tax credits are available for taxpayers who purchase a qualified principal residence on or after December 31, 2010, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010.  The purchase date is defined as the date escrow closes. Taxpayers may apply for the tax credits if they have entered into a contract before May 1, 2010, as long as escrow closes on or after May 1, 2010.

These tax credits are limited to the lesser of 5 percent of the purchase price or $10,000 for a qualified principal residence. Taxpayers must apply the total tax credit in equal amounts over 3 successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased. The tax credits cannot reduce regular tax below tentative minimum tax (TMT). The tax credits are nonrefundable and unused credits cannot be carried over.

The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. However, since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. For example, if a taxpayer is allocated $10,000 for the New Home Credit, the $100 million cap for the New Home Credit will only be reduced by $7,000. If a taxpayer is allocated $10,000 for the First-Time Buyer Credit, the $100 million cap for the First-Time Buyer Credit will only be reduced by $5,700. The 70 and 57 percent reductions do not impact the amount that can be claimed by the taxpayer.

We will allocate the tax credits on a first-come, first-served basis. 

Only one tax credit is allowed per taxpayer. If a taxpayer qualifies for both tax credits, the law specifies that we will allocate the amount under the New Home Credit.

Taxpayers will not be eligible for either tax credit if any of the following apply:

• The taxpayer was allowed a 2009 New Home Credit.
• The taxpayer is under 18 years old. (A taxpayer who is married as of the date of purchase will be considered to be 18 if the spouse/registered domestic partner (RDP) of the taxpayer is 18 or older on the date of purchase.)
• The taxpayer or the taxpayer’s spouse/RDP is related to the seller.
• The taxpayer qualifies as a dependent of any other taxpayer for the tax year of the purchase.

New Home Credit:  A qualified principal residence, for purposes of the New Home Credit, must:

• Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”
• Have never been occupied. Sellers must certify that the home has never been occupied in order for a taxpayer to receive an allocation of the credit.
• Be eligible for the California property tax homeowner’s exemption.
• Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

Tax credit allocation:

• A Certificate of Allocation will not be issued if:
  • The seller does not certify the home has never been occupied.
  • We do not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.
  • We receive the application or reservation request after the total tax credits available have been allocated.
• FTB’s determination may not be protested or appealed.

First-Time Buyer Credit:  A qualified principal residence, for purposes of the First-Time Buyer Credit, must:

• Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”
• Be eligible for the California property tax homeowner’s exemption.
• Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

A first-time buyer is any individual (and the individual’s spouse/RDP, if married on the date of purchase) who did not have an ownership interest in a principal residence, either in or out of California, during the preceding 3 year period ending on the date of the purchase of the qualified principal residence. If the buyer is married on the date of purchase and either the buyer or the buyer’s spouse/RDP had an ownership interest in a principal residence during the preceding 3 year period, the buyer does not qualify for the First-Time Buyer Credit even if the spouse/RDP is not going to be on title.

What this means is that there will be more than $200,000,000 available as the ‘pool’ of available dollars is reduced only by a percentage of the credit claimed. Only in government can this accounting be figured.

I highly recommend anyone who needs to know to visit this website: http://www.ftb.ca.gov/individuals/new_home_credit.shtml

If you have any questions, please contact us at 925-308-7045.

The banks would prefer working with your agent or a lawyer than directly with you, on the loan modification or short sale. It is not because they do not respect you, far from it. They know that the realtor or lawyer has been through the process many times before and knows what to expect as you go through the process. Many of these banks give priority to their borrowers that employ their real estate agents or a lawyer to do the negotiations for them.

The big difference is that your real estate agent, whom you should have a close relationship with, must do this work for you without charge. A real estate agent is not allowed to charge for these types of negotiations. A lawyer, of course, does charge for these and may charge up front for services that may not come to success.

We, of course, think that your real estate agent is the best choice for assisting you in the negotiations for a loan modification or failing that, a  short sale.c Short sales are for the near term, the easiest way to shed yourself of difficult financial situations if you cannot successfully negotiate a loan modification. Successful short sales are very near penalty free with regard to your credit and tax liability. Just recently, the State of California signed into law the abolishment of tax on the short sale forgiveness of debt. Along with the Federal government, there is now no tax liability for short sale for the majority of cases.

In short, id you think you may need to try for a loan modification, using your real estate agent may be the best choice. If you have any questions, please contact us at 925-308-7045. We have had success in these efforts and can help you as well.

The collapse of real estate prices and the continuing search for the end of the potential millions of foreclosures have caused some backtracking by Fannie Mae (Fannie Mae, the Federal National Mortgage Association (FNMA), is a government created, privately held company that buys mortgages from institutions, thus making more capital available to the banks for more loans. The company, along with Freddie Mac(the Federal Home Loan Mortgage Corporation) currently are losing money. Together, they have lost over $380 billion; Congress has taken off the loss caps and there is no limit to how much they will lose.

Back to the point. If you know of anyone who had a short sale or a deed-in-lieu, they may have more of a problem getting the loan than they were led to believe. The current guidelines are as follows:

After overcoming the credit score limitations required (see your mortgage professional as to what your credit score must be) the qualification is as follows.

If you are putting a down payment 20% or more, the short sale or deed-in-lieu must have been 2 years ago or longer.

If you are putting 10% down to 20% down, the short sale or deed-in-lieu must have been 4 years ago or longer.

If you are trying to get an FHA (3.5% down) or VA loan (0% down), then your short sale must have been 7 years ago or more. This is the same as if you had your property foreclosed upon.

There may be programs from Fannie Mae (the HomeSteps program comes to mind, where you may be able to overcome some of these limitation; check with your lender).

If you have any questions, please contact us at 925-308-7045. These changes are happening all of the time and may change at no notice.

Here is who qualifies:
-Members of ‘uniform’ services, members of the US Foreign Service, employees of the Intelligence Community (CIA, NSA, etc.), and are on Extended Duty from 12/31/2008 thru May 1, 2010.

As in the credit about to expire, qualifiers must be in escrow by April 30, 2011 and close by June 30, 2011. That is one year out from the tax credit that applies to most of us.

If you know of a veteran that may be interested in this program, please have them call us at 925-308-7045.