Though I've already posted a blog on this topic months ago, here's another take on this often wondered issue from Vancouver Magazine:
http://www.vanmag.com/Real_Estate/To_Buy_Or_Not_To_Buy
Tuesday, October 27, 2009
To Buy or Not to Buy? That is the question...
Though I've already posted a blog on this topic months ago, here's another take on this often wondered issue from Vancouver Magazine:
http://www.vanmag.com/Real_Estate/To_Buy_Or_Not_To_Buy
Wednesday, October 21, 2009
Phoenix Real Estate Prices Slumping
Too Many Homes on Market Hurt Prices
Source: Fox News - Phoenix
Published : Tuesday, 20 Oct 2009, 10:25 PM MDT
Watch the Newscast ONLINE
PHOENIX - Some experts are saying that the housing slump is far from over. They say home prices have not yet hit rock bottom -- by as much as 20 percent. It's because there's too much inventory.
For every "For Sale" sign, there's a handful more nearby that have received a notice of default for its owners being behind on the mortgage.
An aerial map of homes in the Maricopa County is dotted with homes whose owners are behind on their mortgage.
While not all of them will be foreclosed, many will end up on auction or in a short sale.
Realtor Andrew Wheeler says people don't see it coming.
"The banks have been holding back the REO's, and not letting them out of the legal system onto the auction market. Therefore they're just sitting on them. They've been piling up. We are cruising somewhere into 100,000 units," says Wheeler.
"Every house that I look at that is for sale that is bank-owned is surrounded by several numerous trustee sales that are coming up around the corner."
Banks are apparently holding on to homes because an influx of homes coming onto the market could force prices to plummet. Wheeler says that may be a very real risk come next spring.
22 Tips on How to Not Pay Too Much for Your Home
22 Tips on How to Not Pay Too Much for Your Home
Whether you are buying your first home, or your fifth, the process of buying a home is a detailed, time-consuming venture. At the same time, it’s an emotional period laden with difficult choices. You want to ensure that the home you purchase meets your family’s needs now, and in the future.
Each of these decisions often involves money. When you consider all that money represents, you’ll want to ensure that you don’t pay too much. This article helps you become a savvy buyer, by pointing out some of the pitfalls inherent in the home-buying process. These include such things as knowing what you want before you begin shopping, taking your time to shop, choosing the right realtor, and remaining objective while viewing potential homes. With this information, you’ll be closer to finding your ideal home.
1. Before you shop, develop a needs vs. wants list
Everyone has a picture of an ideal home. This would include all the features you not only need, but have long desired. However, when it comes time to buying a home, the desires cost more. While it’s nice to think about having a beautifully landscaped backyard, or a solarium, perhaps even some built-in appliances, these are usually considered luxury items, which can add considerably to the price of your home.
That’s why it’s a good idea to develop a needs and wants lists. With this list, begin with items you really need like adequate space, garage and number of bedrooms. For most people, basic needs should be considered first. After that, you could consider additional desires, if you can manage these benefits financially.
With such a list in your hands, you’re less likely to be caught up in the excitement of the pursuit. You’ll have a good idea of what you want, within you price range, and if you can afford those additional items.
2. Get pre-approved prior to shopping
Visit your financial or lending institution prior to home buying. Quickly, you’ll know the amount of mortgage you’ll receive. Be sure to get a mortgage commitment in writing. Most importantly, you’ll tell sellers that you are a serious prospect. Depending upon market conditions, a seller may lean towards an unconditional offer. You’ll have less negotiating power if you have to wait for mortgage approval.
Banks and financial institutions have developed many programs especially for home buyers, be that first-time buyers or those with equity in their homes. When you review your needs and objectives with a lending officer, you’ll be one step closer to purchasing your home.
3. Choose your winning team
Buying a home is a complicated process, with many people involved. From choosing the right mortgage, to finding a home inspector, to viewing available properties, there are many steps involved for even the hardiest person. With a professional realtor on your side, you’ll have access to these services, already in place, and highly recommended. A good agent has the knowledge and experience developed from many years of helping both buyers and sellers. During this time they have developed a network of people, from lenders, lawyers, home inspectors and movers, to assist both home buyers and sellers.
4. Communicate clearly with your Realtor
Spending time with your Realtor will reap huge dividends. When you have a clear picture of the type of home you’re looking for, your Realtor can come closer to finding the home you want. You won’t waste time looking at homes that don’t match your needs.
5. It’s still true – location, location, location
You’ve heard it so many times, that it’s probably starting to sound like a broken record. That’s because it’s true! A home is not a stand alone item. Rather the value of a home is greatly affected by the surrounding homes. Don’t let your emotions determine your purchase. Think resale. The desirability and resale value of your home depends largely on location more than any other factor. People want a desirable community that includes character, quality of schools, access to work, major transportation arteries, recreational facilities, etc.
On your viewing trips, take a careful look and ask the following questions: How does this home compare to others in the neighborhood? Are yards fenced? Are there many children playing in the streets? Are front and backyards and the exterior of the homes properly maintained?
Walk around the neighborhood and get a feel for the people living in the area. You may want to speak with a few neighbors to get their comments. If you like the community, carefully examine the home you like. Generally speaking, extremely large homes surrounded by smaller homes tend to appreciate less than a large home among other large homes. Alternatively, the smallest home in the neighborhood tends to stand out by the other homes on the block. Sometimes, it could take a bit longer to sell a smaller home, as some people are reluctant to pay extra for the neighborhood.
Additional factors that affect the property value of a home include traffic, sounds, smells, zoning bylaws. Be objective. Don’t rely too heavily on your emotions. Be sure you are completely satisfied with the neighborhood. If you choose a neighborhood with problems, you likely won’t get as much as you hoped when it comes time to sell.
6. Use your Realtors’ knowledge of the community
Your Realtor is trained in all aspects of Real Estate, including understanding supply and demand, economics and the neighborhoods of the city in which they practice. As they regularly view homes as they are placed on the market, they are at the heartbeat of knowledge and information about housing trends and prices. They can save you time and money, by narrowing your prospects to only those that meet your requirements. It is a very time consuming process to view every home available that meets your needs. A professional Realtor can do much of the work for you, by reviewing your needs, reviewing the properties and then hopefully, advising you of a potential match. A comprehensive knowledge of the available homes in your neighborhood is one of your Realtor’s strongest assets. With the aid of computerized systems, a Realtor is notified within hours when a home becomes available.
7. Check your emotions, and shop with your head
When people purchase a home on emotion, without an objective view of the property, problems may develop later. Shopping for a home is an emotional process. It could be costly. Using your head, along with asking for an objective opinion (from your Realtor) could help you avoid costly errors.
8. Pay attention to “red flags”
When evaluating a home, be sure you know the difference between acceptable and unacceptable problems. Cosmetic items like peeling paint, worn carpeting, unattractive wallpaper can be easily remedied. You could use these as negotiating items, as there will be costs involved in updating the home.
Major problems, however, are clearly “red flags.” Look for items such as major foundation cracks, water damage, outdated electrical systems, and inadequate plumbing. These items could cost you dearly in the future.
9. Hiring a home inspector is a wise investment
A home inspection is an inexpensive way to gain peace of mind, and guard your pocket book. A proper inspection will cover all areas of the house including foundation, electrical, heating, plumbing, floors, walls, ceilings, attic, roof, siding and trim, porches, patios, decks, garage and drainage. A professional inspector can give you an objective view of the property, with a written report, indicating the present condition and items that will need repair.
10. Be cautious with fixer uppers
Some people may be inclined towards purchasing a home that needs some work. This could be a challenge and an opportunity to make money. Sometimes, a fixer-upper can be purchased below market value, and sufficient repairs made to bring it to a good sale condition with a profit realized. However not all fixer uppers will bring in the profits you might expect. It depends upon the price of the home, the amount of repairs needed and the market conditions at the time of sale. If the home is not priced low enough, you may not recover your investment of time, trouble and money. Before you purchase what looks like a quick way to profit, carefully consider the condition of the home and ALL the repairs that need to be made. Get several estimates. Complete a comprehensive budget. Also consult with your Realtor. He or she can give you an idea of what you can reasonably, expect to recover when the home is put back on the market.
11. Consider your future needs
Take a look at your lifestyle now and in the future. Will you need extra space for a home office, a child, or perhaps a child moving back home? Perhaps it may be easier and less expensive if you purchase a home that can meet these needs now, rather than moving up to a larger home a few years later.
12. Proceed quickly
When you’re ready to buy, move fairly quickly. That’s because good properties usually sell fast. This is especially true when there is a shortage of homes available. However, when you work with a Realtor, you have access to the most current technology. As part of the MLS network, a Realtor has access to properties within hours of when they are listed. Technology works to your advantage. When a Realtor knows your needs, they will notify you when properties that meet your criteria become available. Many Realtors now have personalized websites which allow you to sign on a client, and receive notification of these listings via email. You save time and effort, and you can view only those homes that come closest to your needs.
13. Clarify relationships
In any real estate transaction, be very clear about who is working for whom, and what the relationship represents. Many people believe that the agent they are working with automatically represents them and their interests. Yet, without specific disclosures this is not true. Unless otherwise stated, the agent represents the seller in transactions for the sale of a home. This agent, as part of his or her fiduciary duty, must ensure his loyalty protects the seller’s position throughout the entire process.
14. Ask for a written CMA
A Comparative Market Analysis (CMA) is an analysis of comparable homes in the neighborhood. It shows you the sale prices of comparable homes in the neighborhood, along with asking prices of other homes in the area currently on the market. A Realtor can request this report for any home and neighborhood. Ask for this report in writing. With this valuable document, you’ll have the appropriate evidence for either a too-high asking price, or one that is a bargain.
15. Investigate the seller’s situation
Knowing about the seller’s reasons for moving could work to your advantage during negotiations. For instance, a seller who has been transferred to another city, may be more motivated to sell rather than someone who is still shopping for a new home. A vacant house, a house that has been on the market for several months and reduced in price, could also be indications of a motivated seller.
16. Keep personal information to yourself
Conversely, information could be used to your detriment. Information about your mortgage, size of down payment, move-in deadline, or circumstances for buying, could be negotiating factors. While you want your Realtor to know these details, don’t reveal any of this information to the seller.
17. During negotiations, keep your emotions in tact
In certain situations, emotion could cost you money. If you let the seller know how interested you are in the property, this might be seen as a financial opportunity. Recognizing that you are highly motivated, you could be an easier target for a higher price. If you absolutely love the home, keep it to yourself. This is a definite advantage of working with a professional Realtor. Trained to be non-emotional, he or she can ensure you get the best price.
18. Ensure the deal is right before you sign
While you definitely want to move quickly, once you’ve made the decision to purchase, you don’t want to cave in to pressure for a quick close. Someone who is trying to pressure you into buying a home, is doing so for a reason. This could involve money, or a multitude of other reasons.
19. Exercise your negotiating skills
Even if you prefer not to haggle, it’s worth it, especially when it’s your home and your future. Most people expect to haggle over the price. That’s often why the price is set a bit higher than the actual selling price. There is always room for negotiation. If you want to get the best home possible for the least amount of money, then negotiation is the only way to get a good deal.
20. Avoid bidding wars
In some cases, the seller’s Realtor may use scare tactics to rush the sale or increase the price. Falling for this trap could cost you money. If there is another buyer, or some other reason this pressure is being applied, whoever wins also loses because they overpay. If there really isn’t another buyer, then it’s likely that the deal with fall through.
21. Insist on a written disclosure of all known defects
Legally, sellers must disclose all known material defects of a property. Ask for this in writing. Also be sure to consider the ramifications of these defects. Will it be costly down the road? Are they “serious” defects?
22. Be aware of your hidden costs
There is more to a home than simply the mortgage. You will be responsible for other items including mortgage insurance, appraisal fees, legal fees, inspection fees, transfer taxes, title insurance, inspections, etc. Your Realtor can give you a good idea of the costs associated with buying a home that are beyond the final negotiated price of your home.
By. Dave Richards
Whether you are buying your first home, or your fifth, the process of buying a home is a detailed, time-consuming venture. At the same time, it’s an emotional period laden with difficult choices. You want to ensure that the home you purchase meets your family’s needs now, and in the future.
Each of these decisions often involves money. When you consider all that money represents, you’ll want to ensure that you don’t pay too much. This article helps you become a savvy buyer, by pointing out some of the pitfalls inherent in the home-buying process. These include such things as knowing what you want before you begin shopping, taking your time to shop, choosing the right realtor, and remaining objective while viewing potential homes. With this information, you’ll be closer to finding your ideal home.
1. Before you shop, develop a needs vs. wants list
Everyone has a picture of an ideal home. This would include all the features you not only need, but have long desired. However, when it comes time to buying a home, the desires cost more. While it’s nice to think about having a beautifully landscaped backyard, or a solarium, perhaps even some built-in appliances, these are usually considered luxury items, which can add considerably to the price of your home.
That’s why it’s a good idea to develop a needs and wants lists. With this list, begin with items you really need like adequate space, garage and number of bedrooms. For most people, basic needs should be considered first. After that, you could consider additional desires, if you can manage these benefits financially.
With such a list in your hands, you’re less likely to be caught up in the excitement of the pursuit. You’ll have a good idea of what you want, within you price range, and if you can afford those additional items.
2. Get pre-approved prior to shopping
Visit your financial or lending institution prior to home buying. Quickly, you’ll know the amount of mortgage you’ll receive. Be sure to get a mortgage commitment in writing. Most importantly, you’ll tell sellers that you are a serious prospect. Depending upon market conditions, a seller may lean towards an unconditional offer. You’ll have less negotiating power if you have to wait for mortgage approval.
Banks and financial institutions have developed many programs especially for home buyers, be that first-time buyers or those with equity in their homes. When you review your needs and objectives with a lending officer, you’ll be one step closer to purchasing your home.
3. Choose your winning team
Buying a home is a complicated process, with many people involved. From choosing the right mortgage, to finding a home inspector, to viewing available properties, there are many steps involved for even the hardiest person. With a professional realtor on your side, you’ll have access to these services, already in place, and highly recommended. A good agent has the knowledge and experience developed from many years of helping both buyers and sellers. During this time they have developed a network of people, from lenders, lawyers, home inspectors and movers, to assist both home buyers and sellers.
4. Communicate clearly with your Realtor
Spending time with your Realtor will reap huge dividends. When you have a clear picture of the type of home you’re looking for, your Realtor can come closer to finding the home you want. You won’t waste time looking at homes that don’t match your needs.
5. It’s still true – location, location, location
You’ve heard it so many times, that it’s probably starting to sound like a broken record. That’s because it’s true! A home is not a stand alone item. Rather the value of a home is greatly affected by the surrounding homes. Don’t let your emotions determine your purchase. Think resale. The desirability and resale value of your home depends largely on location more than any other factor. People want a desirable community that includes character, quality of schools, access to work, major transportation arteries, recreational facilities, etc.
On your viewing trips, take a careful look and ask the following questions: How does this home compare to others in the neighborhood? Are yards fenced? Are there many children playing in the streets? Are front and backyards and the exterior of the homes properly maintained?
Walk around the neighborhood and get a feel for the people living in the area. You may want to speak with a few neighbors to get their comments. If you like the community, carefully examine the home you like. Generally speaking, extremely large homes surrounded by smaller homes tend to appreciate less than a large home among other large homes. Alternatively, the smallest home in the neighborhood tends to stand out by the other homes on the block. Sometimes, it could take a bit longer to sell a smaller home, as some people are reluctant to pay extra for the neighborhood.
Additional factors that affect the property value of a home include traffic, sounds, smells, zoning bylaws. Be objective. Don’t rely too heavily on your emotions. Be sure you are completely satisfied with the neighborhood. If you choose a neighborhood with problems, you likely won’t get as much as you hoped when it comes time to sell.
6. Use your Realtors’ knowledge of the community
Your Realtor is trained in all aspects of Real Estate, including understanding supply and demand, economics and the neighborhoods of the city in which they practice. As they regularly view homes as they are placed on the market, they are at the heartbeat of knowledge and information about housing trends and prices. They can save you time and money, by narrowing your prospects to only those that meet your requirements. It is a very time consuming process to view every home available that meets your needs. A professional Realtor can do much of the work for you, by reviewing your needs, reviewing the properties and then hopefully, advising you of a potential match. A comprehensive knowledge of the available homes in your neighborhood is one of your Realtor’s strongest assets. With the aid of computerized systems, a Realtor is notified within hours when a home becomes available.
7. Check your emotions, and shop with your head
When people purchase a home on emotion, without an objective view of the property, problems may develop later. Shopping for a home is an emotional process. It could be costly. Using your head, along with asking for an objective opinion (from your Realtor) could help you avoid costly errors.
8. Pay attention to “red flags”
When evaluating a home, be sure you know the difference between acceptable and unacceptable problems. Cosmetic items like peeling paint, worn carpeting, unattractive wallpaper can be easily remedied. You could use these as negotiating items, as there will be costs involved in updating the home.
Major problems, however, are clearly “red flags.” Look for items such as major foundation cracks, water damage, outdated electrical systems, and inadequate plumbing. These items could cost you dearly in the future.
9. Hiring a home inspector is a wise investment
A home inspection is an inexpensive way to gain peace of mind, and guard your pocket book. A proper inspection will cover all areas of the house including foundation, electrical, heating, plumbing, floors, walls, ceilings, attic, roof, siding and trim, porches, patios, decks, garage and drainage. A professional inspector can give you an objective view of the property, with a written report, indicating the present condition and items that will need repair.
10. Be cautious with fixer uppers
Some people may be inclined towards purchasing a home that needs some work. This could be a challenge and an opportunity to make money. Sometimes, a fixer-upper can be purchased below market value, and sufficient repairs made to bring it to a good sale condition with a profit realized. However not all fixer uppers will bring in the profits you might expect. It depends upon the price of the home, the amount of repairs needed and the market conditions at the time of sale. If the home is not priced low enough, you may not recover your investment of time, trouble and money. Before you purchase what looks like a quick way to profit, carefully consider the condition of the home and ALL the repairs that need to be made. Get several estimates. Complete a comprehensive budget. Also consult with your Realtor. He or she can give you an idea of what you can reasonably, expect to recover when the home is put back on the market.
11. Consider your future needs
Take a look at your lifestyle now and in the future. Will you need extra space for a home office, a child, or perhaps a child moving back home? Perhaps it may be easier and less expensive if you purchase a home that can meet these needs now, rather than moving up to a larger home a few years later.
12. Proceed quickly
When you’re ready to buy, move fairly quickly. That’s because good properties usually sell fast. This is especially true when there is a shortage of homes available. However, when you work with a Realtor, you have access to the most current technology. As part of the MLS network, a Realtor has access to properties within hours of when they are listed. Technology works to your advantage. When a Realtor knows your needs, they will notify you when properties that meet your criteria become available. Many Realtors now have personalized websites which allow you to sign on a client, and receive notification of these listings via email. You save time and effort, and you can view only those homes that come closest to your needs.
13. Clarify relationships
In any real estate transaction, be very clear about who is working for whom, and what the relationship represents. Many people believe that the agent they are working with automatically represents them and their interests. Yet, without specific disclosures this is not true. Unless otherwise stated, the agent represents the seller in transactions for the sale of a home. This agent, as part of his or her fiduciary duty, must ensure his loyalty protects the seller’s position throughout the entire process.
14. Ask for a written CMA
A Comparative Market Analysis (CMA) is an analysis of comparable homes in the neighborhood. It shows you the sale prices of comparable homes in the neighborhood, along with asking prices of other homes in the area currently on the market. A Realtor can request this report for any home and neighborhood. Ask for this report in writing. With this valuable document, you’ll have the appropriate evidence for either a too-high asking price, or one that is a bargain.
15. Investigate the seller’s situation
Knowing about the seller’s reasons for moving could work to your advantage during negotiations. For instance, a seller who has been transferred to another city, may be more motivated to sell rather than someone who is still shopping for a new home. A vacant house, a house that has been on the market for several months and reduced in price, could also be indications of a motivated seller.
16. Keep personal information to yourself
Conversely, information could be used to your detriment. Information about your mortgage, size of down payment, move-in deadline, or circumstances for buying, could be negotiating factors. While you want your Realtor to know these details, don’t reveal any of this information to the seller.
17. During negotiations, keep your emotions in tact
In certain situations, emotion could cost you money. If you let the seller know how interested you are in the property, this might be seen as a financial opportunity. Recognizing that you are highly motivated, you could be an easier target for a higher price. If you absolutely love the home, keep it to yourself. This is a definite advantage of working with a professional Realtor. Trained to be non-emotional, he or she can ensure you get the best price.
18. Ensure the deal is right before you sign
While you definitely want to move quickly, once you’ve made the decision to purchase, you don’t want to cave in to pressure for a quick close. Someone who is trying to pressure you into buying a home, is doing so for a reason. This could involve money, or a multitude of other reasons.
19. Exercise your negotiating skills
Even if you prefer not to haggle, it’s worth it, especially when it’s your home and your future. Most people expect to haggle over the price. That’s often why the price is set a bit higher than the actual selling price. There is always room for negotiation. If you want to get the best home possible for the least amount of money, then negotiation is the only way to get a good deal.
20. Avoid bidding wars
In some cases, the seller’s Realtor may use scare tactics to rush the sale or increase the price. Falling for this trap could cost you money. If there is another buyer, or some other reason this pressure is being applied, whoever wins also loses because they overpay. If there really isn’t another buyer, then it’s likely that the deal with fall through.
21. Insist on a written disclosure of all known defects
Legally, sellers must disclose all known material defects of a property. Ask for this in writing. Also be sure to consider the ramifications of these defects. Will it be costly down the road? Are they “serious” defects?
22. Be aware of your hidden costs
There is more to a home than simply the mortgage. You will be responsible for other items including mortgage insurance, appraisal fees, legal fees, inspection fees, transfer taxes, title insurance, inspections, etc. Your Realtor can give you a good idea of the costs associated with buying a home that are beyond the final negotiated price of your home.
By. Dave Richards
Tuesday, October 13, 2009
Owning a Home is Still Better Than Renting
Home sweet home investment? Sure, in the long run
CHICAGO — For all the doom and gloom about the housing market, it still generally pays to own a home.
That might be a tough case to make right now to the 16 million homeowners who owe more on their mortgage than their house is worth. But history suggests the American Dream is a pretty safe bet.
Homes have appreciated by an average of 4 percent a year since World War II. They act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10 percent down payment produces a 1,000 percent return if the price of a home merely doubles.
Plus there are intangibles: Owning a home provides a sense of independence, security and community. And you get to live in your investment. You can't do that with a stock.
Of course, historical trends don't pay the mortgage. People who wade in and out of the housing market too often, or who buy at the wrong time or price and need to sell quickly, can get burned.
But if you own for a decade or more, price appreciation usually overcomes even bad slumps.
Tony and Liz Iacobelli, who are far under water on the home they bought in the Phoenix suburb of Buckeye three years ago, aren't panicking. They owe about $177,000 on their mortgage on a house worth only $132,000, which is about 40 percent of what they paid.
"Houses generally go up in price, and this one will again, too," says Tony, 51, a retired New York City policeman.
Several booms and busts have occurred in the modern era of housing, which began when 30-year loans became widely available after World War II. This bust has been severe: Nationally, home prices are down an average 30 percent from their peak in 2006.
The collapse of the housing market may have put an end to the notion of using a home as a speculative investment akin to a hot stock. And that may not be a bad thing, economists say.
"People should recognize that value comes from a lot of other things besides a possible return on the investment," says Joel Naroff, chief economist at Naroff Economic Advisors.
Economists say home prices have risen by about half a percent a year above inflation, or roughly 4 percent, since the 1940s. That number, which is based on the median price of homes sold each year, was inflated a little by baby boomers starting families and building bigger houses. Since the National Association of Realtors began compiling statistics in 1968, the median sales price has climbed 6 percent annually, from $20,100 that year to $195,200 this past August.
In the late 1990s, home values started growing like stocks. For the next five years, they appreciated at 8 to 9 percent a year, or about 5 percentage points ahead of inflation.
You won't find many skeptics among people who bought homes in the '90s and still live in them. Their homes may be worth tens of thousands of dollars less than at the peak, but they're still frequently worth twice what the buyers paid. For example, a house in Ewing, N.J., that sold for $160,000 for in 1996 was worth about $410,000 three years ago. It's still worth $375,000 today.
Home buyer beware, however: Price declines do occur with some regularity. Besides the 30 percent price meltdown of the last three years, the Standard & Poor's/Case-Shiller index of home prices in 10 cities shows four declines lasting six months or more since 1990. The declines averaged 3 percent.
And whether large or small, a drop can be followed by several years of flat prices. After the 1990-1991 recession ended a housing boom, prices didn't start increasing nationally until 1997. So homeowners who buy at the wrong time can go years without gains.
The hefty costs of homeownership also can work against people who aren't committed to settling in for a while. Transaction costs — home inspections, sales commission, fees, transfer taxes — run thousands of dollars every time you buy or sell.
And most people overestimate the tax benefits. They don't realize the standard deduction they would get if they didn't itemize might be nearly as great as their housing deduction, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
For example, a homeowner with a $200,000 mortgage might pay $11,000 a year in interest and $2,000 in property taxes. That's $13,000 — a healthy deduction, but just $2,100 more than the standard deduction of $10,900 for those married filing jointly.
And as a homeowner pays less each month toward interest and more toward principal, the deduction will shrink — until it falls below the standard deduction, which rises to keep up with inflation, Baker says.
Of course, paying principal builds equity and is the equivalent of a forced savings plan, which can finance big expenses such as college tuition. In the long run, many people fund their retirement partly by selling a home they've owned for many years and moving into smaller, cheaper housing.
Another reason to buy a house is it's a leveraged investment; you pay only a fraction of the price with your own money, which can produce an enormous return. If you make a down payment of 10 percent on a $200,000 house and it doubles in value to $400,000, your $20,000 investment has grown to $220,000, a return of 1,000 percent. That's like buying a $40 stock and watching it soar to $440.
But how can you tell in the short run whether it's better to buy or rent? There's a way to gauge how expensive homes are — the price-to-rent ratio.
The ratio is determined by dividing the price of a home by the annual rent that could be earned from it. Since 1986, the ratio has averaged 9. Anything above that suggests it may be better to rent, depending on your area.
After soaring to 15 at the end of 2005 — above 20 in some areas — the nationwide ratio has dropped back to 10, according to Economy.com data, making ownership far more attractive.
Prospective buyers can do the price-to-rent calculation themselves. For example, if you can purchase a home for $180,000 but can rent a similar one for $18,000 a year ($1,500 a month), your price-to-rent ratio would be 10, making the buying price reasonable and close to average. And you would have the tax benefits and equity that you don't get with renting.
It would be nice to say home prices rise reliably and steadily — and a few years ago they seemed to. But that "sure thing" is no longer.
Short-term prospects are cloudy. Many economists expect home prices to keep falling through 2010 as mounting unemployment, foreclosures and a glut of unsold homes all weigh on the housing market.
Robert Shiller, a Yale University economist and co-inventor of the Case-Shiller index, says he expects home prices to be roughly flat for five years.
Yet housing has proved a good investment if you stick with it. And with prices already having fallen so far, buying now could make it an even better one.
Source:
By DAVE CARPENTER of Associated Press
CHICAGO — For all the doom and gloom about the housing market, it still generally pays to own a home.
That might be a tough case to make right now to the 16 million homeowners who owe more on their mortgage than their house is worth. But history suggests the American Dream is a pretty safe bet.
Homes have appreciated by an average of 4 percent a year since World War II. They act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10 percent down payment produces a 1,000 percent return if the price of a home merely doubles.
Plus there are intangibles: Owning a home provides a sense of independence, security and community. And you get to live in your investment. You can't do that with a stock.
Of course, historical trends don't pay the mortgage. People who wade in and out of the housing market too often, or who buy at the wrong time or price and need to sell quickly, can get burned.
But if you own for a decade or more, price appreciation usually overcomes even bad slumps.
Tony and Liz Iacobelli, who are far under water on the home they bought in the Phoenix suburb of Buckeye three years ago, aren't panicking. They owe about $177,000 on their mortgage on a house worth only $132,000, which is about 40 percent of what they paid.
"Houses generally go up in price, and this one will again, too," says Tony, 51, a retired New York City policeman.
Several booms and busts have occurred in the modern era of housing, which began when 30-year loans became widely available after World War II. This bust has been severe: Nationally, home prices are down an average 30 percent from their peak in 2006.
The collapse of the housing market may have put an end to the notion of using a home as a speculative investment akin to a hot stock. And that may not be a bad thing, economists say.
"People should recognize that value comes from a lot of other things besides a possible return on the investment," says Joel Naroff, chief economist at Naroff Economic Advisors.
Economists say home prices have risen by about half a percent a year above inflation, or roughly 4 percent, since the 1940s. That number, which is based on the median price of homes sold each year, was inflated a little by baby boomers starting families and building bigger houses. Since the National Association of Realtors began compiling statistics in 1968, the median sales price has climbed 6 percent annually, from $20,100 that year to $195,200 this past August.
In the late 1990s, home values started growing like stocks. For the next five years, they appreciated at 8 to 9 percent a year, or about 5 percentage points ahead of inflation.
You won't find many skeptics among people who bought homes in the '90s and still live in them. Their homes may be worth tens of thousands of dollars less than at the peak, but they're still frequently worth twice what the buyers paid. For example, a house in Ewing, N.J., that sold for $160,000 for in 1996 was worth about $410,000 three years ago. It's still worth $375,000 today.
Home buyer beware, however: Price declines do occur with some regularity. Besides the 30 percent price meltdown of the last three years, the Standard & Poor's/Case-Shiller index of home prices in 10 cities shows four declines lasting six months or more since 1990. The declines averaged 3 percent.
And whether large or small, a drop can be followed by several years of flat prices. After the 1990-1991 recession ended a housing boom, prices didn't start increasing nationally until 1997. So homeowners who buy at the wrong time can go years without gains.
The hefty costs of homeownership also can work against people who aren't committed to settling in for a while. Transaction costs — home inspections, sales commission, fees, transfer taxes — run thousands of dollars every time you buy or sell.
And most people overestimate the tax benefits. They don't realize the standard deduction they would get if they didn't itemize might be nearly as great as their housing deduction, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
For example, a homeowner with a $200,000 mortgage might pay $11,000 a year in interest and $2,000 in property taxes. That's $13,000 — a healthy deduction, but just $2,100 more than the standard deduction of $10,900 for those married filing jointly.
And as a homeowner pays less each month toward interest and more toward principal, the deduction will shrink — until it falls below the standard deduction, which rises to keep up with inflation, Baker says.
Of course, paying principal builds equity and is the equivalent of a forced savings plan, which can finance big expenses such as college tuition. In the long run, many people fund their retirement partly by selling a home they've owned for many years and moving into smaller, cheaper housing.
Another reason to buy a house is it's a leveraged investment; you pay only a fraction of the price with your own money, which can produce an enormous return. If you make a down payment of 10 percent on a $200,000 house and it doubles in value to $400,000, your $20,000 investment has grown to $220,000, a return of 1,000 percent. That's like buying a $40 stock and watching it soar to $440.
But how can you tell in the short run whether it's better to buy or rent? There's a way to gauge how expensive homes are — the price-to-rent ratio.
The ratio is determined by dividing the price of a home by the annual rent that could be earned from it. Since 1986, the ratio has averaged 9. Anything above that suggests it may be better to rent, depending on your area.
After soaring to 15 at the end of 2005 — above 20 in some areas — the nationwide ratio has dropped back to 10, according to Economy.com data, making ownership far more attractive.
Prospective buyers can do the price-to-rent calculation themselves. For example, if you can purchase a home for $180,000 but can rent a similar one for $18,000 a year ($1,500 a month), your price-to-rent ratio would be 10, making the buying price reasonable and close to average. And you would have the tax benefits and equity that you don't get with renting.
It would be nice to say home prices rise reliably and steadily — and a few years ago they seemed to. But that "sure thing" is no longer.
Short-term prospects are cloudy. Many economists expect home prices to keep falling through 2010 as mounting unemployment, foreclosures and a glut of unsold homes all weigh on the housing market.
Robert Shiller, a Yale University economist and co-inventor of the Case-Shiller index, says he expects home prices to be roughly flat for five years.
Yet housing has proved a good investment if you stick with it. And with prices already having fallen so far, buying now could make it an even better one.
Source:
By DAVE CARPENTER of Associated Press
Investing in Phoenix - Knowing What's Going On In the Rental Market There
By Tanya Chu
As an investor, we must understand what happens with the real estate market when it crashes to protect ourselves from potential losses.
In Phoenix, as well as in many other US cities, when the home prices fell, so did rents. Right now, landlords are competiting for tenants and have lowered their standards (i.e. not collecting security deposits and not conducting credit checks) and rental price just so that their house doesn't sit empty. In fact, some landlords are even paying for renters' utlities, giving away ipods or flatscreen tv's, or offering a few month's worth of free rent! Tenants now have the power of choice and the ball is in their court - not a good situation for investors.
So, a word of caution, if you're investing in cities such as Phoenix, where prices are down 50% since the peak, or other cities suffering from a similar fate, be wary of where you invest. Make sure that you're picking a good neighbourhood to avoid problem renters.
For more readings on this topic, check out this article in Arizona Republic: Valley landlords face new reality.
Short Sale, Lease Options, Hard Money Lenders, Loan Modifications, and Foreclosures
To read articles on Short Sale, Lease Options, Hard Money Lenders, Loan Modifications, and Foreclosures, check out this website I recently stumbled upon: http://foreclosureangel.net.
This website shares the same name as the charity organization: Foreclosure Angel Foundation - a non-profit organization that helps struggling homeowners keep their foreclosed or about-to-be foreclosed homes!
You can find more information about them at
https://foreclosureangelfoundation.com/Home/tabid/36/Default.aspx
Wednesday, October 7, 2009
Where are all the old people going?
By Tanya Chu
If you're trying to figure out which city is good to invest in, one important factor to consider is demographics. I like to see where all the old people are going for retirement because I believe the babyboomers will dictate the market. Though many boomers have been affected by the market, some still have money to spend and enjoy. On CNN Money.com and Forbes, they often publish lists based on statistics of where they think are best places to retire. This doesn't necessarily mean that this is where the old people will go, but it's a good place to start your research and investigation.
Check out CNN's "25 Best Places to Retire."
How to Find a Foreclosure House
Buying a foreclosure home often is appealing to house hunters trying to stretch their dollars. But finding a good one can be a challenge.
"The vast majority of the banks don't want us to advertise [foreclosure homes] as 'bank-owned' because it comes with a negative connotation," says Ryan Melvin, co-owner of More Realty Group in Las Vegas.
That means there's no sign on the front lawn indicating that it's a bank-owned house. And a buyer probably won't find a property advertised as a foreclosure in marketing materials, says Mr. Melvin, who specializes in real-estate owned properties, or REOs, those that have been reclaimed by a bank, typically after an unsuccessful foreclosure auction.
Where to Find Them
So, if you're considering the purchase of a home that's owned by a bank, you'll need to do some homework.
One option: Go straight to the bank. Banks' Web sites will list properties that the financial institution has reclaimed. To find a list, do a Web search for "REO" and the name of the lender. Contact information for the property's listing agents is usually provided for each entry.
For a fee, other sites will hunt down properties for you. RealtyTrac.com, which helps people find foreclosure and pre-foreclosure properties, charges $49.95 a month, after a free seven-day trial. The company also recently launched BankHomesDirect.com, which charges $19.95 per month and lets people search just for REOs.
Foreclosures.com charges $49.95 per month, after a free seven-day trial.
You also can enlist the help of an experienced real-estate agent. Someone who works regularly with REOs might be able to track down the properties more easily than a traditional agent. The National REO Brokers Association has a searchable database of brokers on its site, nrba.com. The REO Network, reonetwork.com, offers a free listing of real-estate agents specializing in REOs.
Get a Thorough Inspection
When shopping around for a foreclosure property, it's important to know just how much work you're in for -- and how much it's going to cost you. Foreclosure homes are in various states of disrepair; some fixes are cosmetic, while others can be extensive.
Sometimes, people set their sights on bank-owned properties "like the word 'foreclosure' equals 'good deal,' " says Mark Goldman, a mortgage broker with Cobalt Financial and a real-estate lecturer at San Diego State University. But that's not always true.
Lenders aren't held to the same disclosure requirements as sellers who have lived in the home, mainly because the lender hasn't occupied the home to notice leaks or other problems. So an inspection is crucial.
"If there are lessons out of the last couple of years, it's certainly buyer beware," says Dan Steward, president of home-inspection firm Pillar to Post, which has a U.S. headquarters in Tampa, Fla.
"We have all heard the stories of people ripping the copper pipe and wiring out. People have literally gone to the light switch, disconnected the wire from the switch box and have pulled the wire through the drywall," Mr. Steward says. Some have ripped out toilets and kicked in walls or left faucets running before vacating the house, often out of anger.
While you don't need an inspector to tell you that the toilet is missing, he or she can tell you if there is damage 20 feet down the water line because of the way the toilet was ripped out, Mr. Steward says.
Other issues could pop up due to the property being vacant. Large banks will often hire a service to cut the grass, shovel the snow and winterize a home. But when homes aren't occupied, it's harder to catch small problems before they become big ones.
Come Prepared
To increase your chances of getting your offer accepted and having a quick closing process, have all paperwork and requirements in order before making an offer, says Duane Andrews, chief executive of Clear Capital, which provides valuation products for the mortgage and lending industries.
That includes having any financing approved and writing a clean offer -- not asking for minor repairs, for example.
Most bank-owned properties are sold "as is," Mr. Melvin says, so if there is something you want fixed, it's best to just factor that into the price you're offering.
But don't expect to bargain the listing price way down. Banks typically price their properties at a 20% to 30% discount to begin with, he says. If the property has been on the market for a week or two, don't expect the bank to drop the price; if the listing is older, you might have some wiggle room.
Make sure to follow directions when submitting the offer. "Most listing agents will have instructions on how we want buyers' agents to submit the offer," Mr. Melvin says. Delays can occur when instructions aren't followed.
And don't be surprised if the bank asks you to get approval from its mortgage operation. You often don't have to take the loan from their company, he says, but they may want to get a closer look at your finances to make sure you're a solid buyer.
Source:
AMY HOAK of Wall Street Journal
http://online.wsj.com/article/SB125399707660143695.html
Tuesday, October 6, 2009
10 Ways to Find Private Lenders for Your Real Estate Investment Business
If you're considering investing in the US, or if all of your cash is currently tied up
1. Elevator Pitch: Prepare a "60 second" elevator pitch and network with everyone you know including friends, family and business associates. Spread the word you are looking for investors.
2. Join professional networking groups: You can join networking groups like BNI, Board of Trade, Soho, and Meetups. Be sure to deliver your "60 second" elevator speech at every opportunity.
3. Postcard: You can purchase lists of high net worth individuals and send a postcard inviting them to call you to get free information from you or to attend an informational seminar about your real estate investing business and private lending. You can also do a postcard drop at designated neighbourhoods to let them know of your event. This can be accomplished through Canada Post.
4. Letters: Send letters to a high net worth list as above or send it to people that have already called or emailed you from your postcards.
8. Senior Center Newsletters or Newspapers: Advertising in senior center newsletters, newspapers or even bulletin boards can be a productive way to get potential lenders. Again, be sure to offer free information or invite people to a seminar and provide good information.
9. Law Journals: Most cities have weekly or monthly journals for the local lawyers. You may want to consider advertising in your city's journal offering to help the attorney with high net worth clients and possible better returns than they are currently getting on CD's or money markets.
10. Internet: You can spread the word through social networking sites like Twitter or Facebook. However, don't be sales pitchy - just offer educational advice and tips. People will naturally gravitate towards you once you've built trust through credibility. Soliciting for investment funds through the internet is not compliant with the Securities Commission, so you don't want to do that!