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A frequent topic of lunch and dinner conversations these days is whether or not it is a good time to invest in real estate.    And, the answer to that question is “It Depends”.

“It depends”… on what time and investment mean.    

If you are attempting to time the market, you are actually speculating that price levels have reached a bottom and  that they will go higher in the near future.   While buying on price speculation is fine and can be highly profitable, smart speculator’s realize it is also risky.   Since no one truly knows the exact time that property values will reach their lowest level, smart speculators should gamble only with money they can afford to lose.

Investment, on the other hand, is analyzing each situation or property on its own merit to determine a good value.   And, while no one wants to pay too much money for a property, timing the exact lowest price point isn’t what the investor is focused on. 

So, what is the investor looking for??  What determines a good real estate investment??   

Many people believe that their home is an investment.   It can be, but it is probably not.  Unless you plan to rent out rooms, or use your house in a way that generates more income than expenses, it is not an investment.  It is where you live.

The only way to determine investment versus speculation, is to look what the property would rent for versus the cost to own it.   If the property would easily rent for more than the monthly mortgage, taxes, insurance and expenses, it qualifies as an investment.    If the monthly costs exceed the rental income, then the buyer is speculating and paying a premium to own the home.

Bottom Line:  Rent equals Value. 

If you’re a value shopper looking to purchase a home as an investment, don’t buy a property, if you could rent it for less money.   While buying a home from the heart is fine, remember that anything you pay above the market rent is not an investment.  It is speculation or self-indulgence.

The next time the dinner conversation turns to real estate investment, impress your friends and explain the difference between investment and speculation… 

Will they understand….it depends.

Thank you for visiting InfoTube.net.   If your dinner conversation happens to turn to real estate, please tell your friends about us.  We really appreciate it.

In today’s tight credit market, obtaining approval for financing BEFORE shopping for a home is a crucial step that borrowers must take.   Sellers and buyers are familiar with the phrase Pre-approved” or “Pre-qualified” for a loan.  Many of us assume they mean the same thing.  They don’t.  There is a huge difference between the two terms. 

Pre-Qualification:  Pre-qualification is not a loan commitment, it is a quick indication of whether a borrower should qualify for a loan or not, based solely upon the opinion of a loan officer.  With a pre-qualify situation, the loan officer peeks at the borrowers finances, pay stub and credit report and estimates the approximate amount of a mortgage that the buyer should be able to qualify for. 

The loan officer will usually issue a “pre-qualification” letter or certificate which indicates the borrowers finances have been reviewed and that it appears they could qualify for a mortgage loan.   It is not a guarantee that the borrower will actually be able to get a loan.

• It is easy to determine if you have received a “pre-qualification” letter.  If you have not signed an application and/or you have just given information over the phone…your approval is nothing more than an estimate or opinion made by a loan officer.
• If you have not paid non-refundable fee’s along with the signed application, you have not received a loan commitment by the lender.
• Pre-Qualifications should not be taken seriously by borrower or seller.   Pretty much anyone can get the favorable opinion of a loan officer these days, as they are paid only on commission.

Pre-Approval:  In the case of pre-approval, the borrower actually applies for a loan.  Pre-approval is a written commitment by the lender, not a loan officer, which states the specific amount of money the applicant is qualified to borrow.  Pre-approval involves a loan underwriter and takes some time to complete.  The file contains a detailed credit report, income and down payment verification, along with a confirmation that the borrower has the ability to pay closing costs.   

• If you have met your lender in person, completed an application and paid fee’s, you have started the process to become pre-approved for a loan.
• A letter of pre-approval states a maximum amount of money the borrower can obtain financing for.
• The property address will be added to the loan application and the appraisal will be ordered, once the borrower locates a property.
• The borrowers’ bank and employer will be contacted and the information submitted on the loan application will be verified.

 In Conclusion:

Unfortunately for seller and buyer, the terms pre-qualified and pre-approved are not interchangeable.  The difference between the two terms causes a great deal of confusion and problems.  

Please keep in mind that neither is a guarantee that a mortgage will be issued.  The home must qualify, too.  But, a borrower that is pre-approved for a loan, is the only type of buyer a seller should take seriously.  

                      Your Credit Score has a huge effect on your life and personal finances.  Your credit score not only determines your ability to borrow money at all, but also directly affects the costs of borrowing money.  

Under today’s scoring system, an individual with a high credit score can get a loan for cars, houses, vacations, credit cards, etc. at a much lower rate of interest (ie: lower monthly payments) than a person with a lower score.   To save real money every month…take our advise and boost your credit score with the following 7 Tips.

1. Less Isn’t More:  When it comes to your credit score. Lenders like to see different types of credit in your history file including credit cards, car loans and personal lines of credit.   Lenders are looking to see how you handle different types of debt repayment.
2. Don’t Close Accounts:  Keep your old credit accounts open, even if you have paid the loan in full.  The more available, unused credit you have, the better your score will be.  Your older, established accounts are also more valuable to your credit score and raise your score more than newer ones. 
3. Raise Your Credit Limits:  While it helps your score to have a lot of available, unused credit, opening a new credit account will drop your score in the short term.  A good strategy is to ask your credit company to increase your current credit limit on a regular basis.  A high line of available credit is valuable, whether you need the additional credit or not. 
4. Your Net Worth, Income and Savings Don’t Matter:  The only thing that matters to your credit score is what lines of credit you have open and how you use them.   A cash paying millionaire will likely have a lower credit score than a maid or gardner who use credit.
5. Small Balances and Lots of Cards are Better:  Since you credit score is sensitive to how much “available” credit you have, having small balances on a number of credit cards is better than having a big balance on one card only.  As a rule of thumb, you should only use 30% of the available credit on any one card.  70% of your credit limit should be available and unused.
6. Don’t Shop Around or Apply for Credit:   As ironic as this sounds, your credit score drops each time you have an inquiry to your credit report.   Lenders see inquiries as borrowing activity, whether you accept a loan or not.   (Note: Pass up the come on’s from department stores who offer you 10% off your purchase for applying for a store credit card.   A 10% discount is generally worth far less than the points lost due to the inquiry.)
7. Watch the Calendar:  Pay attention to due dates and minimum payment requirements.  While “pay on time” sounds basic, it can be difficult for many of us to do.

One of the unintended consequences of high fuel prices is the apparent effect upon home sales, urban planning and a shift to inner city living, as people flee the suburbs to cut their commute time and expense.

A new report, Driven to the Brink, issued by CEO’s for Cities, a non-profit group, points out the fact that high gas prices have been an overlooked factor when evaluating the reasons behind the housing crisis.   The report finds that the decline in home prices has been more severe in metropolitan areas and suburbs that require lengthy commutes, and where there is a lack of public transportation.

That sentiment was also reflected in a poll of 900 Coldwell Banker agents.  96% of the agents surveyed reported that rising gas prices were a major concern for buyers and 78% said high fuel prices were driving demand for city living.

As real estate prices and sales volumes are studied, it certainly seems that the price of driving a car is changing the definition of location, location, location.   Homes that are close to public transportation, jobs, schools and shopping are selling, even in today’s “buyers market”, as home buyers place greater importance on cutting gas bills and commute times.

What this means to sellers, buyers and investors is that people are looking at where the home is located in a new way.  They are considering the price of gas and driving time before purchasing.   Drivers paying $4.00+ per gallon for gas, do not take commutes for granted, nor will the allure of new construction, granite counters and stainless appliances pull them out to the suburbs, away from their jobs and schools.

In conclusion, gas prices are changing real estate values and the shift appears to be permanent.  Vibrant cities with good public transportation have become a lot more valuable, while rural area’s and suburbs, built on $2.00/gallon gas, have lost their appeal.    This shift is a tremendous opportunity for cities and developers who remix land uses, add higher density housing and better transporataion.

If you are selling or buying a home, you must understand the impact that gas prices have on the definition of location.  You may quickly discover that the rising price of gas means living near the train station is the best thing for your bank account and your home appreciation.

Lease Options, popular in the 70’s and 80’s, are resurfacing  as financing options in the 2008 housing market.    For those unfamiliar with lease options, I will outline what is a lease purchase or lease with the option to purchase?  What are the benefits and drawbacks?  What are the things to watch for? 

NOTE:  Please keep in mind that the information is an overview and is not meant to be construed as legal advise.  Buyers and Sellers should always consult an attorney before signing any legally binding document.

ABC’s of a Lease with an Option to Purchase:

• The buyer pays the seller an option fee for the right to purchase the property on or before a future date.  The amount of the option fee may be substantial or as low as $1.00.
• The purchase price can be fixed at the time of contract or set at the fair market value at the time the option is exercised. (Note:  Most buyers will lock in the future price when the option contract is signed.)
• During the Lease Period, the buyer leases the property from the seller for an agreed upon rental amount.
• The term of the lease option is negotiable, but the term is usually from 1-3 years.
• The Option Fee is generally non-refundable.
• If the buyer does not exercise the option to purchase the property at the end of the lease, the option expires and the seller keeps the option fee.
• Usually, a portion of the rental amount is applied to the future purchase.  (Example:  If the lease is $1200 per month, the seller will apply a credit of $200 per month toward the future purchase price or down payment.)
• The buyer can not assign the lease option without seller approval.
• The Buyer is not obligated to buy the property.

ABC’s of a Lease Purchase: 

• Includes all the standard terms above with the following exceptions.
• The option money is non-refundable and does not apply toward the purchase price or down payment.
• No one else can purchase the property unless the buyer defaults or the option period expires.
• The buyer is responsible for maintenance, all expenses for upkeep, taxes and insurance.
• The buyer is obligated to buy the property.
• The Seller can sue for specific performance in the case of buyer default on a Lease Purchase.

Benefits for Sellers and or Buyers:

• Lease Purchases or Lease Options are usually offered by distressed homeowners or builders. 
• The Seller can often get a higher price than they would with a normal sale.
• The Seller is able to sell the home in a slow market.  Think about it, if the property was easy to sell, the owner would sell it out right for the cash.
• The Seller benefits from locking in today’s prices and gets relief from paying the monthly mortgage.
• In theory, the Seller gets a renter that keeps up the property.  Since the renter intends to purchase the property, they should take care of the home, as if it were theirs.
• The Buyer builds equity through a forced savings plan, as a portion of rent is credited to him, even though the lease payments may exceed market rents. 
• The Buyer hopes to build equity, if the property appreciates during the option period.
• Buyers usually make a small down payment, with little to no qualification, which makes lease purchase a good way to ease into home ownership.
• If the Buyer defaults, the Seller does not refund any portion of the lease payments or the option fee. 

25 YEARS OF REAL LIFE EXPERIENCE:

I have written dozens of Lease Purchase or Lease Option Contracts during the 1980’s real estate crash in Texas.  During that entire period, I never saw one person actually  purchase the property they had an option on. 

The primary reason is often the reason they try to buy with a lease option in the first place…they can’t qualify for a loan.  The second reason for default was that prices continued to fall during the option period and they could buy another home for less money.   The third reason was that the property was in poor condition when they leased it and things became worse with the passing of time. 

If a Seller can not sell, then a lease option or lease purchase may be a sales tool to consider.  They generally generate more monthly cash-flow than renting alone and an option fee is the sellers to keep.  

But note, history proves by a large margin that the tenant will not become the owner, unless their credit situation has improved and the property values increase above the option price.

Bottom Line:  Chances are that 95% of the time, the Seller will get their house back at the end of the option period.

Be forewarned, that the evening news, websites, radio shows, TV programs and foreclosure bus tours that tout foreclosures can be purchased for a bargain, or worse, that they will make the purchaser wealthy in coming years are little more than “paid for” hype.    Don’t buy it.

In my 25 years of real estate experience, I have discovered that for the most part, foreclosures are no bargain.  They are laden with serious problems and lengthy delays, making them “deals” for only those pro’s with patience and a strong stomach.

Foreclosed homes are not wonderful, like the media would have you believe.   The large asset departments that handle foreclosures (REO’s) are managed by employee’s with hundreds of files and no incentive to help the sale close.  They don’t care if the property sells or not, they earn their paycheck, holidays and vacations, in either case.   The truth is that only one of every three offers made to a lender will actually end in closing and Buyers should expect to wait weeks to learn if their offer was accepted. 

In addition to the hassles of dealing with the “could care less” personnel at the lending institutions, getting these homes inspected is also a challenge.  In many cases, entry before the sale is not even possible.  No effort has been made to clean the homes or remove the abandoned trash.   The utilities have long been disconnected.  And, all lenders have a “as is” clause in the sales contract, which states that the lender is not responsible for the condition or repair of these homes, even if they are obvious and necessary.

Another problem with buying foreclosures is that the  owner who lost the home long stopped caring about the property, and in some cases, even retaliated in anger. 

• Always assume if something broke or stopped working, the owner didn’t spend money to fix it.
• Some angry people actually retaliate by attempting to destroy the house. They smash holes in walls and ceilings, plug the drains and turn on the water to flood the home, rip through the sheet rock to steal copper and wiring to sell as scrap.
• They steal the appliances, light fixtures, kitchen cabinets and HVAC units to resell.
• They leave anything and everything behind that they do not want.  In many cases, this even includes helpless animals which are discovered locked inside the abandoned homes.

Buying foreclosures is not for the faint hearted and it is a myth that bank-owned properties are a bargain.  In truth, REO’s are a messy hassle and the cost of repairs often exceeds the value of the home, after the repairs are done.  

I don’t care what commercial you watched or which seminar you attended, if you they haven’t told you this information, they did not prepare you for the reality of the purchasing a home lost to foreclosure.

Thank you for visiting InfoTube Homes for Sale. 

Qualified home buyers are a scarce commodity in the housing market today.  And, much like fine wine, antiques, oil or gold, their rarity makes them much more valuable and clearly places them in the drivers seat when they begin to negotiate terms for a home purchase. 

Shrewd buyers have the power to cut a deal like never before, if they negotiate with finesse.  Finding a seller who will accept a low ball offer takes strategy, knowledge and time, but the payoff can mean thousands of dollars in your pocket now and later.

Tips for Presenting a Low Ball Offer:

1. Present a Clean Contract:  Dot your I’s and cross your T’s.   Present a complete, tidy offer and make sure everything is signed and initialed in the proper place.   Don’t ask for things that are not customary.  Shorten inspection deadlines.  Reduce or waive contingencies. 
2. Back up that Squeaky, Clean Contract with Facts:   Appear strong, qualified and ready to close.  Provide a pre-approval letter for the financing, when you submit your offer.   Provide the comparable sales data to back up your offer, so the seller can see why the offer is lower than the asking price.
3. Learn what motivates the Seller:  Price is not the only factor when buying or selling.  Knowing the motivation behind the sale can save you money.   For example, a seller who has school age children may accept a lower price, if they could lease the property back until the school year was over.   
4. Don’t add insult to injury:  If you are presenting a low ball offer, chances are the price will be insulting enough.   Most sellers are emotional about their home.  Don’t do further damage by criticizing the seller’s tastes with comments like “we will certainly have to get rid of that wallpaper” or by pointing out small problems like “the caulk in the shower is discolored”. 
5. Play on insecurity, but cut the negative comments:    Try to avoid negative comments about the house or condition unless someone asks you.   Great questions which raise doubt without raising tempers are “how many offers have you received?” “how long has your home been on the market?”  “how many houses are for sale in your neighborhood?”.   These type of questions create urgency without offending the other party.
6. Consider hiring a buyers agent:   Buyers often call the listing agent for property information, falsely thinking they will get a better deal.   Nothing could be further from the truth.   The listing agent, by law, must do everything possible to get the best offer for the seller paying the commission.  A buyers agent has only a duty of fairness to the seller, but their fiduciary obligation is to the buyer.   Additionally, Redfin and other buyer broker agencies kick back up to 2%, so you earn money while they do the dirty work for you.
7. Plan on Making Multiple Offers:  If wheeling and dealing for a great price is the goal, expect to make offers on at least 10 properties.   The odds of finding a desperate seller who will entertain your low ball offer increases with the number of sellers you present offers to.
8. Time is of the Essence:  Include a time deadline of 24 hours on any offer you present.   In addition to alerting the seller that you are prepared to walk away, a time deadline creates a sense of urgency and compels a response to your offer.   It also limits the time sellers can shop for a better offer before they respond to you.
9. Take the Focus off Price Only.  Sweeten the  Pot.  When I present low ball offers, I always ask the buyer to give up something else to entice the seller.   Consider offering a larger than normal security deposit.   Waive inspections or repair clauses. Pay your own closing costs.  Move up or delay the closing date.    Accept imperfections and shortcomings in the property condition.
10. Expect a Counter Offer:  Rejection is a normal part of negotiating.  Don’t make an offer that you think a seller will accept and don’t be upset if the seller turns you down, flat.   All sellers feel their home is worth more than the one next door.  When presented with a counter offer, always respond back, if you want to buy the home.   As a general rule, I always hope to make the seller say “no way” at least twice before I feel the deal may be falling apart.  
11. Let The Seller Sit:  Be prepared to walk away, if negotiations are at a stalemate.   Most sellers will negotiate further after more time on the market with no sale.   Keep your original files on any home you have made an offer on, but always update your data before going back to the seller again.  If the market has fallen further or is expected to fall further, you may find that your offer now looks a lot better than the “one in the bush”.

Thank you for visiting www.infotube.net and happy home hunting!!

Home Buyers are in the enviable drivers seat when shopping for a home.  Big savings can result from lowball offers, if they are presented and negotiated smartly.

The Best Case Scenario for Lowball Offers

1. The property has been on the market for at least 120 days.
2. The sales price has been reduced 3 or more times.
3. At least a month has passed since the last price cut.
4. Sellers have a compeling reason to move such as death, illness, divorce or job loss.
5. Homes advertised as “all offers considered”, “willing to negotiate” or “must move.”
6. Neighborhoods with an inventory glut and heavy competition.
7. Sellers who have owned the property for over 5 years. 
8. Homes that are back on the market, after being under contract.

Tommorow we will look at presenting and negotiating a lowball offer.  

Thanks for visiting www.infotube.net

In an effort to soften the sharp housing downturn, the Senate recently passed a $150 Billion Bill to provide relief for homeowners, in theory, for homebuilders, for certain.

The “foreclosure relief” bill, which now moves to the House for approval, sounds helpful, but falls shamefully short on solutions or assistance for homeowners losing their houses.   In fact, the only set aside for those facing foreclosure is a $100 million in counseling assistance, which possibly makes sense to prevent over-borrowing, but accompishes nothing after the fact.

Relief for Homebuyer’s received a mention in the bill, but the real help offered was for the benefit of bankers, developers and builders.   

The bankers and builders receive a $25 Billion Dollar Tax Rebate and plans to steer buyers to their foreclosed properties, with the lure of a $7000 future tax credit.   The bill provided a $0.00 tax credit, if homebuyer’s purchase a home owned by anyone else.

Translation:  Homeowners, who are paying their mortgages on time, will suffer an immediate $7000 loss in home value, as they attempt to compete against lenders, builders and developers when selling their property.

In Conclusion:   The $150 BILLION Dollar Relief bill harms taxpayers and homeowners, and does little for families in financial trouble.  The only “help” offered is for the politicians, banks and the powerful, cash laden, National Association of Home Builders, who threatened to stop handing over millions of dollars in campaign donations, unless they were cut in on the taxpayer give away.   The result.  When the votes were counted… the money counted more.  The Senate sealed the deal by a 84 to 12 margin.

Question:  Have we had enough, already???   Don’t you think if the US Congress really wanted to help the housing market, they would simply offer a $7000 tax credit to anyone who buys a home that they intend to live in (ie: no investors), no strings attached???    Instead, homeowners and buyers are penalized in favor of the banks and builders who likely created this mess in the first place.

Action:  I urge everyone who cares about their home to immediately write their State Representive in protest, before this bill is passed.    We don’t have millions of dollars for lobbiest or bribes to get their attention, but we do have numbers and the power of the pen on our side.

   With many major home builders clearly struggling, why aren’t new home prices falling as fast as we see in the pre-owned home sector?  The answer is they are, but the discounts come in the form of incentives to purchase, rather than price cuts.

Home builders are relucant to slash prices in their own developments with good reason.   Dropping prices creates panic among homeowners who have already purchased and encourages buyers, who are still under contract, to walk their deals and run for the hills.

For example, publically traded Lennar homes disclosed that their base sale price has remained stable, but their average incentive to new buyers is approximately $50,000 per home.  This slight-of-hand discount allows Lennar, like other builders, to discreetly reduce their prices, instead of obviously reducing their prices.

Home builders choose to give away free appliances, vacations, cars, special financing or free swimming pools in order to keep peace in the neighborhood, while maintaining higher prices for the community and future build jobs.   So, why does this appealing alternative only work for builders and new homes??

Incentives work for builders because they are in control of the inventory in a new home development.   Individual sellers in existing neighborhoods have a difficult time “sweetening the pot”, as an option to slashing their asking price, because unlike the builders, they can not control what price their neighbor will sell for.

When making an offer for a new home, don’t expect your builder to accept an offer $50,000 less than the sales price, but do take them up on their offer for a new BMW.