Archive for the ‘Worth Reading’ Category

Home Sellers: Top Five Must-Have Products

If you are selling your home and are also living in it, I don’t envy you. Being ready constantly for home buyers to walk through your home is hard enough. But in this real estate market with every potential home buyer wanting to negotiate the best price, the pressure is definitely on you, the home seller to offer that special something in your home that no other house has, that the bank owned property down the street cannot offer. And in light of that, I have compiled a list of products I believe could make your life easier during this transitory phase. By making it easy to keep your home looking and smelling great, these products may get your home sold faster and easier while keeping you sane!

Pledge Pet Hair Remover

We all love our pets. But especially in the summer months (which is when most homes go on the market) we know they like to shed their fur. Dogs, cats – they all do it. And the fur sticks to everything. We can probably live with it, but when you’re having potential homebuyers come through the home in hopes of plunking down hundreds of thousands of dollars to buy it, pet hair is a strict no-no. But they aren’t going to buy the couch, you say. Nevertheless. Any dirt, dust, garbage and yes, pet hair should be removed. It is only a distraction from the home and ruins first impressions.

So what do you do? Get one of these Pledge Pat Hair Removers. Yes, it’s a little pricey – about $14 for one. And it’s disposable. But it lasts a long time and really picks up pet hair from couches and curtains. I’ve tested it! Forget the lint rollers. Get this. You’ll be glad you did.

Glade Plug-In Fragrances

Every home has a smell but because we live in it, we don’t smell it any more. Sometimes I have walked into people’s homes that smell of pets, the food cooked in it (especially fish) and yes, even garbage. If your home is on the market, it’s especially important to take the garbage out two or even three times a day.

But beyond that for that extra boost of warmth and comfort, you can get a Glade plug-in fragrance. Plug it close to the entrance so that is the first thing your potential home buyers smell as they walk in to the home. Pick one that smells like cookies as opposed to one that smells like flowers. Research shows that the smell of home baked cookies makes people happy and brings back memories of childhood warmth.

Swiffer Duster

This is just a personal favorite. One of the best things a home can showcase that home buyers are immediately attracted to are appliances and electrical fixtures like fans, lamps and so on. Most home stagers and interior designers suggest that if you want to make a home look more expensive and grand it is a good idea to use high end fixtures because it catches the eye of anyone who walks through the home.

High end fixtures are a very good idea. However, if they are covered in dust, it detracts from the value of the home. And in this regard, the value of a Swiffer duster is priceless. Especially use it on ceiling fans. Don’t think your home buyers won’t look up! And nothing takes away from a beautiful fan like a layer of dust on the edges!

Swiffer Sweeper / Vacuum Cleaner

This should go without saying. I know, I hate sweeping too. But if your home is on the market, a Swiffer sweeper makes a huge difference if you have hardwood floors. I remember the first time I bought one of these and used them in my first house. My husband claimed we had reached a new level of clean. It was true. You can’t really see the dust on the floor but if you run the sweeper you will pick it up!

Of course, if you have carpet, you want to get it professionally steam cleaned and then vacuum clean every single day. Smells can get trapped in the carpet and hang in the air inside a home. You do not want any bad odors reaching your potential home buyers!

Vinegar (any brand)

Speaking of odors, in my opinion, nothing gets rid of smells like plain white vinegar. It’s also extremely cheap, which is always a plus. Just get some white vinegar on a paper towel and clean the kitchen counters with it every day. That will keep your home smelling great and clean. Don’t worry – the sour smell of the vinegar itself dissolves and doesn’t last in the air. Also, if you’re concerned about other smells in the air, you can pour some vinegar in a bowl and keep in open in the kitchen. This goes a long way in neutralizing odors in the air. Try it. It really works!

Hopefully, I’ve convinced you how important it is to keep a sparkling home when you have potential home buyers walk through the house. Again, remember this is part of a top five series. Keep a look out for more top fives!

Drinking Water For Children Dying of Thirst? Charity rating: No Brainer

I’m not always one to fall for every cause that comes along.  When PBS telethons come on, for example, I have no qualms whatsoever about changing the channel.  But I recently received this message in my inbox, and because it was too easy to use my voice here to pass it along and to urgent a plea to ignore, I reprint it with only minor modifications from the original.

There’s a widget in the right sidebar you can use if you want to make a donation.  And if you’re wondering, yes, already I did.

Over 4,000 children die each day due to illness from lack of clean drinking water. Our goal at BlogCatalog is to "shake you up" and unite you with other bloggers so that we can solve this problem.

Bloggers along with Bloggersunite, WaterAid America & others are working together to bring clean water to people who are dying because of dirty, unsanitary water.

Isn’t it unbelievable that over 1 million children a year die because they don’t have clean water; when a well can be built in a town for a few thousand dollars. WorldAid does this. They have simple solutions to this big problem. Bloggers can help and many already are helping.

If you haven’t joined or blogged about what they do, let’s help them do their jobs. The results are measurable and have a direct impact on whether a child lives or dies.

It’s so simple, and if we unite, and contribute we can help another person who isn’t as fortunate as we are. For far less than an iPhone, a mobile phone, when we come together as bloggers, as the "new media", we can save 1 million children’s lives each year.

Please make a difference and visit

http://www.bloggersunite.org/event/wateraid-a-burden-for-thirst

New SAR Fund Helps Energy Efficient Upgrades

With this year’s summer being so much cooler than the previous Sacramento summers, you might not notice that you need more energy efficient appliances and windows but homebuyers of older Sacramento homes just might. Luckily for them (and homes built before 1978) there is help. The Sacramento Association of Realtors hoping to fix the reluctance of homebuyers from buying older homes has started a program funded with $234,000 to give qualified homebuyers $2,000 to make energy-efficiency improvements. While making these improvements can sometimes cost more than that amount, it can be a good place to start for many homebuyers.

About 6 in 10 homes currently on the market are estimated to be built before 1978. This program would also cover many on the foreclosures that are currently on the market for sale.

Some qualifiers: Homebuyers must use a SAR Realtor or lender, so the homes must be located in an area that a SAR Realtor or lender is qualified to sell or get a mortgage. The homebuyers must also get an FHA (Federal Home Administration) or VA (Veterans Administration) Energy Efficient Mortgage. These mortgages allow homebuyers to borrow up to 5% to make energy efficiency upgrades. These can include adding insulation, dual paned windows or new air-conditioning to an older home. The costs are rolled into the mortgage. The SAR program requires that a SMUD-certified contractor do the work.

This might just help clean up that short sale and foreclosure inventory, or at least help provide an incentive to many homebuyers who are relatively short on cash after buying a home.

New Guidelines for Home Appraisals

Having just met a friend who went through the maddening scenario of an appraisal coming in too low, the feeling is still fresh in my mind. But on the heels of consumers complaining of artificially increased appraisals of homes now comes the opposite – house valuations are coming in too low. The typical scenario goes like this: a home is in escrow, agreements signed and then during the transaction, an appraisal is conducted and it comes back about $50,000 lower than the agreed-upon price. Now, keep in mind that the asking price is usually not arbitrary. Gone are the days when home sellers inflated their home because “it simply must be $10,000 higher than their neighbor’s house!” Today, asking prices are decided by bank-owned homes selling as comparables in the same neighborhood. So when an appraisal comes in that low, everyone is distraught. Sometimes the transaction falls apart.

However, this industry practice may soon change. In guidelines issued on June 30, 2010 Fannie Mae said lenders must contact appraisers to resolve discrepancies between the valuations, rather than simply reducing the appraisal. If it is not possible to contact the appraiser, the lender should order a second appraisal. Borrowers and/or sellers who believe a home valuation is too low may appeal the valuation or request a second option. It’s important to note that the second valuation must be more than five percent higher than the first—anything less is considered an acceptable difference.

Also, effective Sept. 1, Fannie Mae is prohibiting the purchase of loans from lenders who change appraisers’ numbers.

Home Listing Prices May Be More in Line with Homebuyer Expectations

Well, maybe. Or home sellers and banks are just waiting to see how aggressive (or passive!) home buyers will be this year. With the hottest months of the year arriving, both in real estate and in terms of the weather, listing prices have steadied. According to Trulia, 22% of homes on the market today in the United States as of June 1, 2010 have had at least once price reduction since they went on the market. This is a decrease from 23.6% of all homes that had a price reduction as of June 1, 2009. The average discount however continued to hold steady at 10% off the original listing price.

Cities in the Western United States experienced the largest decreases compared with the previous year with Las Vegas leading the way. Vegas had a 67% decrease. Yes, our very own Sacramento tops the secondary list there along with Oakland, San Jose, Los Angeles, San Francisco and San Diego with a price reduction of 24% or more.

Price reduction levels for luxury homes priced at $2 million of more held steady with 21% experiencing a price reduction and an average reduction of 14% off the listing price.

Where’s the Balance?

As with all other cycles, this real estate cycle of excesses will end. So says – in paraphrase – David Crowe, chief economist of the National Association of Home Builders. The Los Angeles Times reported that it may seem odd to talk of shortages in this era of foreclosures and excess inventory, but the cycle will change someday and when the market returns to “normal” we may see more homebuyers and not enough homes. As a result, the multi-family category will be hit hardest, in other words, apartments may get harder to find. Also, since so many homeowners have had foreclosures or other credit/financing problems today, mortgages might get harder to acquire as well. He suggested that apartment builders need to “start now” if they want to be ready when the shortfall comes.

What interests me while watching this entire market go up and down and all around as it has lately is how what we call balance and “a good real estate market” always lasts such a short while. What exactly is a good real estate market? A seller’s market? A buyer’s market? I tend to believe it’s when most home buyers with good credit or decent credit qualify for a home purchase that they can afford and inventory in most areas is not more than 3 – 6 months. Such a balance though is going to be hard to find today with the foreclosures and short sales and also because as sellers and buyers we’ve gotten spoiled by easy credit and quick sales. Today the pendulum has swung to the other extreme where borrowers with good credit are still having a hard time closing escrows they worked so hard to put together.

We’re just going to have to wait and see where this market goes. As a real estate teacher once said, it may be a buyer’s market or a seller’s market but it’s almost always an interesting real estate market. Not a dull moment.

Homebuyers in Escrow: Federal Tax Credit Extended!

I received this “hot off the press” in my mailbox yesterday, so technically it is not breaking news, but I know so many homebuyers who are upset about delayed escrows and extended timelines lately in the real estate process that this is good news for those worried about waiting on banks. Read on!

The Senate has approved a plan to give homebuyers an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring. The move by Senate Majority Leader Harry Reid would give buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale. The proposal would only allow people who already have signed contracts to finish at the later date. About 180,000 homebuyers who already signed purchase agreements would otherwise miss the deadline.

Remember this only applies to home purchases already in escrow with a signed and executed contract from on or before April 30th, 2010.

Lenders Might Be Getting Rid of Foreclosure Backlog

There might be some hope for this real estate market after all, but it may not come soon. Foreclosure filings (for homes in some stage of the process) declined in May by 3% from April 2010 according to Realty Trac as reported by the Los Angeles Times. California accounts for 22% of these foreclosure filings from all over the country.

The article also reported that the pace of homes exiting foreclosure and being seized by banks hit a record high in May for the second consecutive month, which leads us to believe that the banks might be working through their backlog on the market and ready to put some more foreclosed homes on the market very soon. Anecdotally, many people have noticed that banks will either hold on to inventory after foreclosing or will delay foreclosure so as to avoid flooding the real estate market with inventory. We might begin to see some of that “shadow inventory” that has been referred to so often.

You may read the entire article here.

After a Foreclosure

With the number of foreclosures, short sales and other financial hardships affecting so many people in Sacramento and elsewhere in the country, the question often comes up: Will I ever be able to buy a home again? Will any bank ever give me a loan to finance a real estate purchase?

The short answer is: yes. The longer answer is: yes, but…

And here’s the “but…” part of it. Lenders will always ask for reasons why. One friend said it very matter-of-factly that you will always have to explain a foreclosure but because there are so many right now, the stigma, if you will, of a foreclosure on your record at this time might not affect you as much as it would have during a financially good time. This does not mean that you will not have to provide documentation that you did not strategically let the home foreclose but getting a home loan might not be as distant and impossible as it seems today.

In approximately two to five years after a foreclosure, the financial situation of the borrower could look considerably different to a lender. And you want to keep in mind that although your FICO scores have suffered as a result of the foreclosure, you might be able to show other factors as a good savings history, employment history and so on. Also, other bills paid on time will have a great impact. A larger down payment might also be necessary.

This is to say that if you have genuinely experienced a financial downturn in your life, all is still not lost. The dream of homeownership might still come true for you. It just might take a little longer than you hoped.

California Tax Credit Details

If you have missed out on the federal tax credit by not getting into escrow on or before April 30 to close June 30, 2010, you might want to consider the state tax credit. But be forewarned, this credit is limited to available fund and might run out soon.

Here are some highlights of the tax credit:

Tax credits are limited to either 5 percent of the purchase price or $10,000, whichever is less.

The home can be a single-family house, condominium, townhouse, houseboat, manufactured home, or mobile home.

The home must be a primary residence and not an investment property.

Taxpayers must receive a Certificate of Allocation from the state Franchise Tax Board to claim the credit.

If the available tax credit exceeds the amount of taxes owed, the unused tax credit may not be carried over to the following year.

The state credit, worth up to $10,000 over a three-year period, became effective May 1, 2010.

Good News, Other Good News, In-between News

Well, it’s news. And unlike the dramatic kidnappings, murders, your vanishing checking account numbers and other keep-you-awake-all-night kind of news, this news is rather tame.

For one thing, those of you who noticed that the website wasn’t working for a few days in between, there’s good news. We’re up and running again. The web hosting company was changing servers or servicing changes or some other technical stuff only John would really know. Happily, things have settled down now and you are free to go back to the website and search for homes to your heart’s content.

In other good news, which you may not care about quite so much is that now the MLS is Macintosh compatible! You see, for the longest time us Realtors needed a patch if we wanted to use the MLS on anything besides a PC with Internet Explorer. I know, I know. You don’t care. But it frees up my desktop from two extra folders, so I’m thrilled. So there.

And now for the non-news. Don’t get me wrong – it’s still news. But in true non-news fashion, you won’t care that much about it. And it is that I was reminded by an old email yesterday that I have now been official broker-of-record for exactly a year yesterday. Or in other words, John built Elite Properties from the ground up and then hired me to take over the day-to-day business of paperwork, writing the website and supporting our agents. Succinctly put, it’s been a lot of fun.

So, go ahead… look for a home! And come back – the website will still be up. And we’ll all be right here!

Homebuyers Interested in Real Estate Investments

Move Inc. recently conducted a survey about real estate investments and attitudes of home buyers and here are a few of the highlights. Some of these are quite interesting to note. For one, interest in real estate investments has more than tripled in the past year. The survey said that in fact 17.2% of potential home buyers today said that they planned on purchasing a home in the near future as an investment compared to just 5.6% in March 2009.

The Move Homeownership survey also found that approximately half – 49% – of all homeowners they surveyed would buy another home today if they could sell their current home for what they paid for it or more. Some of the most important reasons influencing decisions to sell their current homes have to do with day-to-day budgeting. Many homeowners would like to reduce monthly expenses because of financially hard times, growing families or a better school district for their children. A few other reasons for selling have been moving closer to conveniences and purchasing a nicer or larger home. In many cases, loan modifications have not been available, although this is purely anecdotal evidence.

As far as perceptions go, real estate remains high on people’s radar with 55% of responders saying that they pay attention to their home’s values today as compared to a year ago. Just 10% said they paid less attention.

For the entire article published in Realtor.com go here.

Foreclosures: Contradictory Messages and Different Numbers?

The California Association of Realtors announced recently that foreclosure sales have increased 92.3% year over year in March 2010. In February 2010 this increase was 24.2% as compared with February 2009. This information comes directly from ForeclosureRadar’s March foreclosure report. Elsewhere there is information that real estate prices are set to fall once again.

I just want to jump into this and clarify the difference between foreclosure sales as reported by companies like ForeclosureRadar and this website. Our information comes solely from the MLS and what our website calls “foreclosure sales” are those homes that have been placed on the open real estate market by banks and listed by a real estate broker. These homes are considered REOs, or “real estate owned” by the bank, houses that have been foreclosed on by banks due to lack of mortgage payment by home owners.

Most companies that keep track of real estate sales data that are not primarily a real estate brokerages also count the “sale” of a home back to the bank as a foreclosure sale, which is why their numbers always appear more numerous than our totals. In their case, the foreclosure of one home can appear twice – one sale to the bank, the other to a homebuyer, while we would only count the latter. It is an important difference to remember.

Foreclosures are Down, But…

Spring has definitely sprung. I don’t know about you but a few days ago when I saw the weather report and saw an entire week of uninterrupted sunshine, my heart gave a little jump. And obviously home buyers are feeling the same way. This is the last official month of the homebuyer tax credit and tax returns are in. The real estate season seems like it’s definitely here!

It might not be time for homeowners in Sacramento or people considering selling their homes to rejoice yet, however. True, we are seeing some great news come out of foreclosure sales. In fact, over the last three months foreclosure sales are consistently at 50% of what they were a year ago at the same time. (This is of course referring to the number of sales and not real estate prices.)

Non-distressed properties are also gaining momentum in sales. Closed escrows now tell us that 1 out of every 3 sold homes is non-distressed, which means that the homeowners are not upside down in their home and they do not have to get bank approval to forgive their mortgage debt in order to sell it. That’s good news. A year ago, just 1 out of every 10 homes was in that situation. Quite a dramatic turn around.

Unfortunately, the one dark cloud in this real estate recovery is the short sale inventory. And it could just be the reason why the green shoots springing up from the ground might take a while to show the bloom of price gains. For the last three months, we have seen more than a year of short sale inventory every month. With just over 300 short sales closing escrow, the 4200 or so short sales on the market might take a while to get absorbed.

Dark cloud? Yes, definitely. The only silver lining I can see here is that based on the last year of real estate sales, we had 13.5 months of short sale inventory and based on the last six months of sales, that number of short sales has gone down to 12.7 months. It’s a beginning. Let’s hope so, anyway.

Making Home Affordable – Is It For You?

If you’ve received a slick flyer in the mail and thrown it away with all the other junk mail, I won’t blame you. There is just so much mail filling up our mailboxes these days. But this one might be worth another look. The Obama Administration’s Making Home Affordable Program is said to target 7 to 9 million homeowners and offers you the opportunity to be able to refinance or modify your home loan. There are also possibilities for being able to request a short sale or a deed-in-lieu-of-foreclosure set out.

All details are at the Making Home Affordable Website. Go there with your mortgage statements ready and be prepared to do some math. The website walks you through your eligibility for the various programs as well as calculates if your payments are more than 31% of your gross pay. 31% so far seems to be the magic number.

New details also state that the latest enhancements to this program include not just help for homeowners that have not been making payments but also homeowners who have been timely and are underwater on their homes. This has been a frustrating fact for homeowners in the past and it might just be what some homeowners who feel stretched too far will need to remain in their homes and prevent further foreclosures. Now if only the banks would co-operate!

Be forewarned, however. Some of these modifications, short sales or refinances can have tax consequences and you will want to talk with your tax consultant about them.

Back to School (and Real Estate, hopefully!)

As I write this, the agents at our real estate office and I are beginning to wonder where everyone is. On the one hand, people seem to be back from their lazy summer days in July vacation, but on the other wherever they are, they’re not searching for homes. Hmmm… is it the back to school rush?

It isn’t just the website, however. It’s also roads, stores, public parks. There seems to be a lull in the air in general. Yesterday I went to the public library in our area and found a total of five cars in the parking lot. I thought it was closed. Where is everyone?

If you’re a potential homebuyer in today’s market and haven’t bought a home yet (or are not actively searching and making offers) you should be paying extra attention to your timeline if you’re interested in the first-time homebuyer credit. Remember that this credit of $8,000 or 10% of the total purchase price expires on December 1st of this year.

Many mistakenly assume that this means they need to be in escrow on December 1st, which just isn’t true. The rules are very clear – you need to have bought a home – which means – signed paperwork, have it recorded and closed – before December 1st, 2009. With escrows taking longer with additional details lately, you should shoot for a 45 – 60 day close. Which leaves you with barely enough time to find a home this month and get into escrow!

Also remember, this is a tax credit, not a tax deduction, which means you get it even if you have no tax liability to deduct it against.

So if you are in back to school mode but are also considering buying a home soon, give us a call. We’ll make it as easy as possible to shop for a home. There are still some REOs left, but even the owner occupied homes are priced affordably and are worth a look.

First time Homebuyer Tax Credit Ending Soon!

With the real estate market going down and the number of foreclosures we have been seeing, many homebuyers have taken a wait and watch attitude. The ones that jumped in have reaped quite a few rewards, however. For one, there’s the fact that interest rates have been at historical low levels. For another, it’s that prices themselves have been lower than they have been in a long time. Affordability is here!

In spite of these changes however, some remain unconvinced that this might be just the time to look into that long put-off purchase of a home. If you’re one of those homebuyers that is still sitting on the fence, you might want to rethink your position. The first time homebuyer tax credit – yes, the much talked about $8,000 tax credit to first time homebuyers – is ending soon. December 1st, to be exact. And since many escrows are taking about 60 or even 90 days thanks to added paperwork, if you want to take advantage of this tax credit but are not actively working with one of our agents and looking for a home, you’re going to get left out.

For the purposes of this credit, if you have not owned a home in the last three years, you qualify as a first time homebuyer and the credit is $8,000 or 10% of purchase price. Remember this is not a tax deduction but a tax credit, which means it is refundable even if you have no tax liability. Got your attention? Then give us a call or drop us an email and get to looking for a home immediately! There are many homes to look at and our agents are some of the most hardworking in the real estate industry.

Good luck!

FHA No Flip 90 Day Law

First off, I would like to say the best thing about being part of the Association of Realtors® is the legal hotline. Where else would you have lawyers sitting around the phone waiting to answer your legal questions? For free?

I recently had the opportunity to use the broker’s legal hotline provided by the California Association of Realtors® because we had a question about the 90 day no flip law of the FHA. I think now that most loans are FHA loans I think it’s a law I should mention here and discuss in brief. (Of course, the disclaimer stands: I’m not an attorney and am not providing legal advice.)

If you wish to read the law for yourself, you can click here. Referred to as “24 CFR section 203.37a” or more commonly the “90 day anti-flip law” of the FHA it disallows you from selling the home (or even having it under a sales contract) you have bought with an FHA loan for the first 90 days of ownership. There are various other requirements regarding appraisal and so forth for period after the first 90 days as well.

Now you might say, who’s flipping? But the fact is, many people are, albeit for small profits. From what I hear, the number of bank-owned properties on the market are dwindling and although some Realtors® expect to see more listed later this year, the quality of REOs on the current real estate market leaves quite a bit to be desired. This may have just contributed to the perfect scenario for small profits in the quick-flip area. Rehabilitating REOs and then selling them on the open market might be welcomed by eager home buyers who have trouble finding decent homes that are not REOs (too much competition) or short sales (too unsure.)

Whether the inventory goes up from here with more REOs coming on the market according to predictions or it doesn’t, watch for more of these kind of flip homes as the bank-owned homes start to look less and less attractive because of their condition. As the market starts to recover, we may just see more flips before it stabilizes.

If you’re considering it, just make sure you know the laws around it!

New Homes vs. REOs

During a recent conversation with one of our top producing agents at Elite Properties, Mike Keleshian, he mentioned something that I thought would be worth mentioning on the blog. He said that new homes are lately very possibly beating bank-owned homes as better bargains for home buyers and they are definitely options a home buyer should keep in mind when shopping in this market.

Really?

When one thinks of great bargains in this current real estate market, we tend to think of mainly bank owned homes. While it is true that prices have fallen overall because of the number of foreclosures in the market brought about by the number of bad loans out there, it is also important to remember that prices have fallen for all the homes.

While banks usually price their inventory at rock bottom prices to get rid of it, other homes in the neighborhood are also affected. Their prices have also fallen. (As you probably already know, prices are based on comparable sales of nearby homes. If all the homes in the area are foreclosures and their prices are depressed, the prices of the subject properties fall as well.) So it’s not just the foreclosures that are underpriced – brand spanking new homes have also lost value and are now cheaper than they used to be.

Can a Realtor® Show me New Homes?

Absolutely. In fact, one of the biggest changes that has occurred because of the real estate slowdown is that new homes are now featured regularly in the Metrolist MLS that all Realtors® in the area use. In the past, Realtors® were not welcome in new home subdivisions – and if you can remember the time – home buyers were picked by lotteries and long waiting lists.

Today, the situation is completely different. Home buyers have huge incentives to buy these new homes, whether it be free upgrades or better financing. Some homebuilders are also throwing in luxury vacations and so forth to entice home buyers. Of course, while you’re not really considering a luxury cruise as soon as you buy a new home it is important to know that the home buyers now hold the cards.

What about the Financing Aspects?

If you’re a first time homebuyer in this market, the world is your oyster! Besides the tax credit to first time home buyers, new home builders are now giving you incentives in terms of financing your home purchase. These incentives include a lower interest rate (i.e. lower than what you could get from the bank or any mortgage broker – they discount a point or so) if you use their preferred lender, various upgrades like granite counter tops, landscaping and / or custom paints and so on. Sometimes, builders will even offer to pay a year or two of your mortgage payment.

To compare this with a bank-owned home is to see the advantages of buying a new home right away. Bank owned homes typically need you to jump through their hoops – get pre-approved with their own lender, shorten your timelines to get a loan and various other financing issues. Why not look at new homes and take advantage of the incentives offered to you?

What are the Other Advantages?

I remember attending an appraisal class once and although the emphasis was on how to use comps for Realtors® the appraiser discussing details said something pretty unequivocally – Never compare a new home to a resale home. Why? Simply because it’s a new home!

But besides the fact that some people prefer homes where no one else has ever lived, the fact remains that a new home is something of a novelty for which people will pay a premium. Just from the practical side of things as well it has suffered less wear and tear and less depreciation than a resale home and usually much less than a home that has been foreclosed on someone for non-payment. (Of course, if there were no finances available for the mortgage payment, we can assume there is deferred maintenance on the home.)

It is up to the individual home buyer to decide whether or not he or she prefers a new home subdivision to a resale home, but it is however a choice that should not be ignored if you’re in the market for a home today. There is a host of choices out there and it’s a good idea to at least check each one out before making a decision!

Home Buyers: Top Five Rules of Trading Up Part 2

Yesterday we went over the most basic of rules for trading up or moving out of a small home into a bigger one. It’s important to plan this move perfectly and sell your old home before you buy a new one just because of the general state of the real estate market as it is today. Today we’ll see the rest of the rules of trading up, equally as important as the others mentioned in part 1 of this post.

3. Consider renting the old home

While this is not the conventional practice and can seem like a pretty odd thing to choose, if you are interested in adding real estate to your investment portfolio, this can be a pretty good idea. Many homeowners achieve this when the home they plan on moving from has a relatively small balance left on the mortgage or is completely paid off. While the idea of refinancing that small balance, borrowing against the home seems counter-intuitive, if you are conservative about it, you can manage to do a pretty good job.

The way it works is this: homeowners will refinance the home they currently live in and take some money out as a down payment on another one. (Like I said, this works best if the previous home has a relatively low balance on it and if they borrow conservatively. You can choose to supplement the borrowed down payment with savings to avoid borrowing too much.) The earlier home then will become a rental that brings in money every month (albeit a small amount) in rent which covers the new mortgage, taxes, insurance and other repairs.

It works because buying a home today can be cheaper than renting. But make sure your math is impeccable when you do this and you are not averse to working weekends – at least every once in a while – on your rental property.

4. Do your Research

If you are considering renting out your old property and moving into a new one, I strongly advise you take some time to research the neighborhood you live in and the one you intend moving into in terms of the following questions: Are there a majority of rentals there or owner-occupied homes? What is the average rent? How much visibility would the rental have? What is the average rental period? Are leases more common or month-to-month tenancies? What is the vacancy factor? And finally, how long does a home stay on the market before it sells. You will want to know this and get a good idea of the rental as well as the sales market in the area in case you decide being a landlord takes up too much of your time or otherwise isn’t worth it.

Another aspect you want to be careful of when you decide to rent out your current home and buy a new one is that you understand and are comfortable with the kind of mortgage you get. This is true also when your current home is taking longer than usual to sell and you have your eye on a new one. If you run into the wrong lender, he or she might try to sell you a loan that might work in the short term, and if you are comfortable with that, you may take it. But be absolutely sure that you understand the consequences of it, so you are not stuck with a mortgage you cannot afford or otherwise ruins you financially.

5. Get pre-qualified

Getting pre-qualified early is always a good idea even if you have just begun considering buying a home. The reason for this is that even if you aren’t going to write an offer the next day, you might want to get an idea of your credit. With the recent changes in credit extensions, reduced credit lines and otherwise rising interest rates and balance transfer fees on credit cards, you want to be absolutely sure your credit score gets you a good home mortgage rate.

Even if you are absolutely sure of your credit, still getting pre-qualified helps because you’ll have an idea of your monthly mortgage payment, your interest rate and also your total fees. This goes back to the previous point of doing your research.

That about sums it up for the top five rules of trading up! Follow these and you should be just fine. There are many homes to look at and remember that it’s a buyer’s market currently. So once you have sold your current home (or otherwise rented it out and are happy with the numbers) more than half the battle is won. Trading up into a bigger home – or your dream home – can be done right in any market if you do your homework. Good luck!

Home Buyers: Top Five Rules of Trading Up Part 1

Yes, the real estate market is great if you’re a home buyer. Interest rates are low, prices are even lower and there is a lot of inventory. There are so many homes to look at you might have a harder time making a decision than if there were fewer. Somewhere here I have written about how studies claim that the more options there are the harder it is for people to choose. But all that aside, as a first-time homebuyer, real estate right now seems like an easy “no brainer” choice.

But what if you’re looking to trade up? What if you are like so many of the rest of us who has homeowners already and just don’t want to pass up on this opportunity to buy a bigger home? Perhaps the last one just doesn’t do it. Maybe your family has grown or the kitchen seems to be getting smaller every year as your social circle increases. What then? Is there still room for those of us?

The good news is yes. But trading up is harder now because if you’re hoping to use the value of your old home to buy a new one you might be surprised to learn that your old home isn’t worth what it used to be. While it is easy to say that you will just make up the difference on the other side of the transaction – which is to say that even if the value of your current home is depressed, so is the value of the new one – this is not always an equal transaction.

Here’s what you need to know to make a smart decision about trading up:

1. Plan before you move

It’s easy to dream about a bigger home. If you are like a lot of people, Open Houses are fun and not just because you get to pry into your neighbor’s home. Okay, just kidding. We know you don’t do that. (Do you?) No, if you’re like most people, window shopping homes can be a lot of fun. You get to see different ideas of how homes are arranged and how people live. You get interior decorating images stuck in your head. You wonder if you can make your home look like a picture in a magazine.

When you are seriously in the midst of home shopping though you have to put that starry-eyed version of a house away and focus on practical matters. This can be a tough transition for a lot of people. Planning involves not just making lists of things you hate about your current home that you want to be different in your new home, it involves marrying that list to reality, budgeting for what is already available and can be bought and also making plans for the future to bring in what cannot be yours immediately. If it doesn’t sound like fun, it’s not. Not really. Unless you love doing this sort of thing. Then, more power to you! Go forth and conquer!

2. Sell before you Buy

I did already mention this a little bit earlier but I think it’s worth devoting an entire section to it. If you live in a home you bought a while ago (and by a while I mean before the recent appreciative period in real estate prices) you might still be able to sell it and make a profit. But don’t base your decision of how much your home is worth on the appraisal you got two years ago. And don’t base it on its refinanced value a year ago either. The only way to know how much your current home is worth is to get an appointment with a local Realtor® and have him show you the recent comps. These might surprise you, but it’s the only way to know if you’re looking at this move realistically.

Once you get an idea of how much your current home is really worth, you can then go back to the drawing board and decide if a trade-up seems like a good idea. You might decide that the numbers don’t add up as well as you thought and the old home doesn’t seem so bad after all and you can wait until this current depressed real estate market recovers to make your move. Or then again you might decide that this move is definitely possible. If your decision is the latter ensure that you sell your current home (not just put it on the market) before you head out looking for another. While it might scare you to be without a home for a month or two while your old home is sold and there isn’t a new one, it is the safest way to trade up. And with so many homes there to look at, finding a new home to fit your life into might not be as hard as you think.

Tomorrow, we’ll get into Part 2 of the Five Rules of Trading Up. Come back! If you are one of the many that are moving into a bigger home, you don’t want to miss this!

Home Sellers: Top Five Landscaping Tips

So we all know we’re after curb appeal. Home buyers don’t know it but they decide within the first two minutes of looking at a home (sometimes mostly from the outside) if they are interested in going in or not. And so, home sellers must pay attention to curb appeal. What’s curb appeal? Simply put, curb appeal is how the house looks from the outside, or, the sidewalk and landscaping plays a big part in first impressions for any one.

If your home is set to impress its potential home buyers, the landscaping must be impeccable. This does not mean that you have to get a professional and spend thousands of dollars on landscaping, but it does mean that you should pay extra attention to detail and remember the outside of your home as much as the inside. Grass isn’t just grass!

First, it must be Green!

If you are one of those people who like to water the garden and spend hours outside enjoying digging in the dirt and fertilizing, first of all, I’m jealous. But secondly remember that the potential home buyers might not feel the same way. Most people don’t have the time or energy or simply aren’t interested in spending time in the garden.

They do want a thriving lawn however and some plants that look nice year round. Be sure to have sprinklers. Not only will it be an amenity that should add some extra value to your home, automated sprinklers will guarantee that your property remains green even when you are moving or are away for a week or so, which can happen when you are looking for a new home or have already moved into one. These might be times when you don’t have those extra hours to relax watering the lawn and yellow blotches in it will take away from the curb appeal of the home. An additional benefit in the hot Sacramento real estate summer is that your lawn will look happy (and your home will look cared for) when compared to the bank-owned homes out there and stand out from the competition!

Neat & Tidy wins Buyers

If you have lived in the home for a while chances are you have had fun with your backyard and front yard. You may have been so excited to have a patch of ground you can call your own (if this home was your first, especially!) that you may have grown anything you came across on your strolls through nurseries and perhaps even The Home Depot. I know because I was like that. Anything new that seemed to look good got planted. Sacramento is also forgiving to a lot of plants that seem to need just water and sunshine and as a result almost all kinds of plants do well so it’s easy to go berserk.

When it’s time to sell the home however, you are entering a whole new world. You don’t want your potential home buyers to say they like the home but the garden will need a complete overhaul because it’s messy. Or that they think it might be too much work. Or – oh, God! – do those rosebushes come up? When it comes to selling your home, think like a home buyer. Keep it tidy, neat and green.

Draw Attention to It

If you have a wonderfully maintained and easy to manage landscape, it can sometimes be easy to miss. If it is in the backyard, don’t put your dog there and have the home buyers see it just through the windows. Any amenities and anything beautiful in your home that is going to stay must be showcased. So open the curtains wide to the garden and take the dog somewhere else. Ideally, invite the home buyers outside. In the backyard, this could mean a barbecue or patio area in the middle of where you want them to look or in the front or side yard, it could mean a quiet reading bench or bird bath with a path leading to it. Showcase your garden as you would your favorite china!

Remember the Neighborhood

It’s important not to do overdo it however. It’s always important to remember the demographic of the area. There’s a law in real estate that is called the Principle of Conformity and it says that the home most like the others in the area has the highest value and properties that diverge too much from the others in the neighborhood lose value as a result of their differences. While this does not mean that you should try and make your home a cookie cutter of all others, it does mean that you should give some attention to who your potential home buyer might be.

Sometimes it’s a good idea if you are considering putting your home on the market to take a drive through the area and see what the other homes look like. Better yet, search the MLS and find homes that have already sold for what you would consider a reasonable value that were owner occupied. Your Realtor® can provide this information as well. Borrow some ideas from them. Are they low maintenance with mainly rock? Are they indulgent and extravagant? Do they just have a lawn? You might not want to stray too far from the pack in this regard.

Some Ideas for Sacramento

Lastly, here are some plants tested by me that do well in Sacramento and manage to stay neat and tidy and also look great. Geraniums are always perfect, especially in borders. They do well in the area and are hardy to the occasional freezes. Bougainvillea is a lovely plant and is a wonderful accent to a home but plant it only along a south facing and protected wall. That way, it can get some heat from the wall even in the winters and survive. Honeysuckle is very easy to grow in Sacramento along a fence, but it must be pruned hard every spring. If you’re not a good pruner, don’t bother with honeysuckle. Same with jasmine. Pink jasmine is a lovely creeper, but it must be pruned and needs lots of sunshine. Avoid hard to care for plants like tropicals and orchids.

This is part of a top five series for homebuyers and home sellers. Be on the lookout for more top fives in the weeks and months ahead!

Homebuyers: Stress & How to Deal with It (Part 1)

Let’s face it: buying a home is stressful. Even if you are one of those people who have been waiting with bated breath to finally get into a home of your own and would gladly throw the landlord a party (albeit a very small and cheap one) just to gloat over the fact that you are no longer to pay him rent every month, it is common to have pre-homeownership jitters. So today and tomorrow, I’m going to talk about the most stressful days you can expect to have throughout the home buying process. Hopefully, knowing that you will have these will help you to know how to overcome them and make the experience slightly smoother.

Don’t expect it to be all roses, though. Buying a home is inherently stressful. It involves two very dear things: money and – well – your home, a place you intend to live for a long time. It’s the perfect recipe for worry. But forewarned is forearmed. I know, it’s a cliche, but so true.

Stressful Day #1: Picking the Home

Shopping for a house can be relatively fun. I have only had one client so far who was not excited about looking for the right home. Some clients look on it as an adventure. Others just want it over with. Whatever your idea of house-hunting is, I can’t help but think it is a bit like shopping for clothes and therefore fun. Well, at least for a short while. But once the shopping part is done comes the first stressful day in a homebuyer’s life. It involves choice.

Researchers have found that the more choice we have the harder it is to choose. That is one reason they say life has become more stressful. Just the plethora of choices out there cause us to freeze and make it unable to calculate pros and cons. And on the real estate front, there definitely are a lot more choices today than a few years ago. In the real estate boom, when home buyers found a home they liked – even if it was just one – they had to run home and write an offer before it was gone. Today, you have days and sometimes even weeks to reach a decision. And that makes it harder, not easier.

How do you deal with it? The old fashioned way is as good as any. Get a piece of paper and pick your favorite three homes from all the ones you saw. That by the way is a good measure for when you can take a break from looking as well – once you see three homes you could live in, stop and pick. Then write down the pros and cons of each. Be creative. And don’t stick just to the floor plan and things like bedrooms and baths. Include financials in here as well. If one of them promises to be a long and iffy escrow, put that in as well. Soon, a picture will emerge that helps you decide which one you want to make an offer on. And save the others if you want as back-ups.

Stressful Day #2: Writing an Offer

Any day you just cannot forget your checkbook at home is bound to be a stressful day! But meeting a Realtor® in an office and putting down concrete dollar amounts and dates to be legally bound to can be nerve-wracking, especially to a first time homebuyer. I still remember my favorite couple I sold a home to. They were very savvy first-timers and yet while writing the offer looked so nervous, I brought them a glass of water. Everything worked well for them in the end and they got the home they wanted, but they still remember that day as one of their terrifying ones.

So how to do prepare for this? One way is to get a blank copy of the purchase agreement a day or two before the Realtor® writes it for you. That way, you’re not hit with 20 pages of initialing something you haven’t read before. Another way is just to discuss the offer over the phone and have the Realtor® write it out and email it to you. That way you have time to read everything before signing it and sending it back. Whichever way you decide to do it, remember to read everything. Knowing what you have signed and knowing that the offer has been written to be in your best interests and that you are protected with contingencies will make you feel more confident. And writing that check will not be half as hard as before!

As it turns out, there are more stressors than I thought there would be. So this will be a three part series. Come back tomorrow for more ways on how to deal with them as a new homebuyer. If you are a first time homebuyer, these posts are a must-read. They will help you – in the least – become aware of your anxiety and the reasons for it and at the most overcome it to make your home buying experience smoother than usual.

How to Love your Home when the Real Estate Market Doesn’t

Remember when we all thought our homes were all that and more? Back when all we had to do to feel good about our houses was to go to a website where they gave you free market analyses (and a virtual cookie to go!) just for showing up? And if we needed to feel really good, all we had to do was call an appraiser? This was back when people were pulling money out of their homes to buy cars and vacations with?

I don’t even have to mention that those days are long gone. They might be here again eventually – given enough time – because human beings have very short memories and economic cycles are cyclical. But for the short term anyway, that idyllic time is over. Virtual market analyses are just plain old depressing and the people that pulled money out of their homes to buy cars and now almost living in them! So how do you still love your home? How – knowing that the foreclosure next door has sold for a fraction of what you paid for your house – can you be satisfied and decide not to chuck it all up and leave?

Foreclosures & Short Sales have Serious Consequences

Remember when you were growing up and your friends asked you to do something silly and you did it, what did the adults around you say? So if he jumps off a bridge, you will, too? Of course not, you thought. Of course I wouldn’t. I’m not that silly. Well, unfortunately, jumping off bridges (metaphorically speaking of course) has become pretty common lately. This does not apply to those people that have seriously been duped by being given the wrong mortgage they didn’t understand and I’ve met them. There are those however that just want out of their home because it has lost value. Retirement funds and other funds including savings accounts intact. I’ve met these people as well. These are people who can make their mortgage payments, but just don’t want to. They didn’t buy a home, they bought a speculation and now that it’s lost value, they want out.

Foreclosures and short sales can leave serious blemishes on your credit history – results that can reverberate for years to come. And just because everyone else is doing it and it seems like times are tough economically, there is so much bad news out there and you seem to have a get out of jail free card, so to speak, doesn’t mean you should use it. You will still need somewhere to live. You still need credit. And decisions like short sales and letting a home get foreclosed on you can haunt you for a long time after this economy recovers. If you have other options, explore them first.

Mortgage Interest Deduction

Besides building long term wealth one mortgage payment at a time (especially if you are a landlord) your home helps you out financially at tax time with the mortgage interest deduction. Most homeowners can deduct their interest payments on their mortgage under itemized deductions. Property taxes are also deductible. Check with your individual tax planners but for most tax payers, the mortgage interest tax deduction is the largest single deduction on their income taxes. (There has lately been some talk at the California Association of Realtors® regarding this deduction and if there are changes, we will definitely mention them on this blog.)

Security Blanket

Perhaps the most overlooked part of a home in all this talk lately about falling home prices and so on is just the simple fact that your home is your security blanket. Most people don’t buy homes to invest in and while that may be a consideration it is not the premier reason for a house purchase. Most people buy homes to live in, a place to come to relax in after a hard day’s work, a place to have friends and family over and perhaps even a place to leave to their heirs.

And in this scheme of things, falling home prices don’t matter as much. It is important to remember the reasons for buying a home. Because unlike market values that can be measured every month with numbers that can turn someone blue in the face on the news, the personal value you have in a home can not be measured as easily and yet can rank higher in your mind.

So if you’re tired of seeing your house value fall, but are in it for the long term, turn off the television. Make those repairs, put in that baby gate at the top of the stairs, paint your bedroom a sunset pastel orange. You might not change its market value but you might just change how you feel about it and that might do. For now.

Recipe for a Real Estate Disaster Part 2

As I sit here snowed in from all the “rain” in Pollock Pines, I’m beginning to realize another essential element of real estate success. And therefore another ingredient which goes into a recipe for a real estate disaster:

Recipe for Disaster #4: Not Getting Educated

I’m not talking about a college education here, of course. I’m talking about getting all the information about investing in real estate before you do anything. Okay, maybe ALL the information might be a stretch. But you should be pretty well versed in the area, prices, days on market, the types of homes in the neighborhood and so on. If you’re a first time home buyer, you’re obviously in the right place. This blog has so much information on finding the right place, getting the right Realtor®, what happens during home shopping and how to write an offer, what to offer and so on that you’ll be hard pressed to find a better resource. Nonetheless, remember that finding a home is more work than you might think.

The recipe for disaster comes in when you ignore doing your homework and jump headlong into something for which you have no exit strategy. The world’s best businesspeople will tell you to think of an exit strategy before you get into anything. It seems like you are thinking in reverse, but that’s a good idea. Beginning with the end in mind is a good way to begin. Of course, if you’re buying a home to live in, this question becomes (mostly) irrelevant.

With Serin, he did I suppose learn a few tricks from the real estate coaches, but didn’t take an indepth enough approach to eventually do well. Which was what was required. He hopped around from one idea to the next (and one property to the next) – something that was sure to end in doomsday as it finally did.

Recipe for Disaster #5: Being too Public

Now I know most of the publicity in the Serin case came after he had already made a mess of his so called real estate investments, but I think there’s something to be learned from that too. The problem was that he kept wanting to milk his mistakes to the very end. He started a blog about what a mess he had made, so that others could learn from it. He started a book, appeared on the Dr. Phil show and various other places for interviews, thus costing him whatever sympathy he had managed to generate from people just reading his story in the newspapers.

The problem with being so public about your real estate investments is that you tend to begin to make decisions based on reactions. You begin to stop thinking logically and rationally and begin reacting. Believe it or not, there are people out there that will be either threatened or just plain envious of your success and create impediments. When I said earlier that you should talk to a varied enough audience about your real estate ideas, that has to be in moderation. Get too public and it can become a pretty big recipe for a huge real estate disaster.

Recipe for Disaster #6: Not Sticking with It!

Real estate is a very strong investment – whether you’re one of those buying it as a home you will live in or you’re going to buy the house and rent it out. However, it does require patience. Many of the real estate investors (and homeowners) I know believe that the first ten years of owning real estate is just the beginning. While you may have heard stories of overnight millionaires in real estate, the truth remains that those are few and far between and have had oodles and oodles of luck. The real real estate moguls always win by buying at the right time and waiting it out.

Serin didn’t wait for anything. He didn’t even pause to think. Even after he had a mistake and learned he had made many mistakes, if he had just held on a little longer and found a way to make it work, he would have been much happier. Unfortunately, when the market turns, not too many have the fortitude or the insight to be able to hold on to their properties until they start to turn a profit. Of course it goes without saying that some cash reserves help in this regard. This is where the getting educated part comes in. Now, some people would call this preparing for the worst case scenario and that might just be true. Get educated and then have the resources to wait it out. If you don’t, that’s a recipe for disaster as sure as can be!

Now, please remember that I am not bringing up Serin to bash him. I think there’s been enough of that. I think he made some unforgiving errors of judgment and then some more to follow them up with. The reason I’m writing this post is so that even in this market we don’t miss out on the lessons we should be learning from the mistakes in the past. Even if they are made by someone else, no one is immune to them. Avoid these pitfalls and avoid creating the perfect recipe for your own real estate disaster, lest you end up like Serin! Good luck!

Recipe for a Real Estate Disaster

The other day while reading some old posts, I came across the name Casey Serin and realized no one had mentioned him in the media for a long time. Remember the guy? He bought about a dozen houses (if I remember right) all over the United States and kept borrowing from one to pay off the other or credit cards. The idea was that he flip homes and keep going and eventually make a ton of money.

While this strategy may have worked in a better market, (there are those who have been immensely successful flipping homes for a profit. You have only to look at the presenter of “Property Ladder” – Kirsten Kemp.) However, I think it was more than a bad market that ruined him. I think in the end all of the homes have ended up foreclosed and Serin is in debt upwards of a million dollars. Very sad story, but I think there was no way it could have ended. It just had all the ingredients of a recipe for disaster. Want to avoid your own real estate disaster? Then read on.

Recipe for Disaster #1: Not Talking to a Varied Enough Crowd

Serin claims he learned all about real estate investing in the seminars real estate coaches hold in hotels conference rooms almost every month. I’m sure you’ve seen the advertising. “Come and learn how to make money in foreclosures!” “There’s a gold mine in real estate right now…. watch this free video and learn how to make it happen!” and so on. Full disclosure: I have attended some of these seminars myself. While I’m too cheap to go attend the weekend seminars which promise all the secrets as opposed to just the choice few the presenters give you to whet your appetite for the free ones, I must say I was also pretty put off by some of them.

But personal tastes (and gag reflexes) aside, some of these presenters and real estate coaches have some pretty good information. And – processed well – one could potentially do well under these ideas. However, I think it’s very immensely important to also cross check idealism with the real world. For example, if you have been in a room with salespeople all day, take a break and talk to some friends. Or ask a real estate professional if what the real estate coach says is even plausible. No joke: I once received an offer on a listing that was completely illegal to have written which included huge amounts of cash back to the buyer after closing that would never hit the HUD-1. The offeror’s name? John Doe. No lie. Of course it wasn’t his real name. I’m guessing he was copying it from a sample contract handed out by one of these “coaches.” Had he spoken with someone else besides just the “coach” he would have known this offer was illegal and the very least he could have done to lend himself some upfront credibility at least would have been to put his real name in the offer!

Recipe for Disaster #2: Not Knowing the Market

This might be the one thing that most home buyers who relocate find the most troubling. And it is a valid fear. When you don’t know the area you plan on moving to, you are bound to find some surprises along the way. And usually after you have bought the home. Or when you are in the throes of love on a home you have in escrow. That is a bad time to learn about the market.

Ideally, if you are buying real estate in an area you know nothing about, you would try to get as much information about the place as possible. If you intend to live in the area, the information would be of a different kind: Who are the neighbors? What are they like? What is the demographic? What jobs are available? Which is the closest store? And so on. If you intend investing in real estate in an area, the questions are completely different. These would involve questions like, how long homes take to sell? What listing strategy do agents use? What kind of homes are in the neighborhood? Would I be overbuilding and lose value if I put in granite? Are most homes fixers? And so on.

Serin made the cardinal error of just buying real estate willy-nilly all over the country with no awareness of the local real estate markets. No matter what anyone says, the fact is that all real estate is very, very local. So to become a real estate disaster, all you have to do is forget the old adage “location, location, location.”

Recipe for Disaster# 3: Doing too Much too Soon

Many of the real estate investors I know look like they spend their days doing nothing. One day, I will get a call from them saying they want to refinance a certain property. And then, months after, nothing. But somehow, they end up with a handful of properties that begin to look like gold. Years later, these same people that looked like armchair critics have a real estate portfolio that is the envy of beginners like me. What did I miss?

Without doubt, a lot of buying and holding of real estate is speculation. For speculation to work in your favor, you must know how to weigh options and think critically of houses before you buy them. Serin did none of this. If every house looks like it could make you money, you need to stop and breathe. Reconsider and set some criteria houses should follow for you to buy them. Decide on a number you would want a home to get you – either in rent or resale value. This studying and thinking require time. Real estate investing is not something to be rushed into and that’s exactly what he did. To avoid taking a loss on one home, Serin went and bought another one as the value of the first one dropped. When, really, he should have taken some time to relax and think about it.

Of course, this in no way ends the recipe for real estate disasters. Because there are more. Come back tomorrow to learn more of what not to do!

More Good Ideas in Real Estate

The last time, I focused on some general ideas in real estate that I find to be important for home owners to know about to appreciate their home ownership goals fully. Today, I want to focus more on the residential investment side of things in all things real estate. There are many good ideas in this area as well and many of them end up making the investors some money! Again, please let me remind you that none of this is legal, tax or investment advice.

Real Estate Good Idea #1: Investment Real Estate

Yes, why not? Investment real estate in itself is one of the best ideas in real estate. Think about it: you buy a home, you get tenants to live in the home, they pay you rent, which in turn you pay the mortgage and other expenses with. You’re responsible for repairs, property taxes and insurance and eventually you hold the house until it appreciates or until you want to hand it over to your heirs. Not a bad idea overall.

Landlording is a serious business because you’re responsible for the condition of the home your tenants live in, but with a little care in screening tenants and taking care of the house, it can be hugely profitable, especially if you buy the property at the right time when home prices are low. That way, you can even manage to get enough of a rent payment to cover the mortgage and other expenses, something that is pretty tough to do in a state like California, where historically home prices are higher than rents.

Real Estate Good Idea #2: Cashflow

Most investors will tell you that is the only way to invest. If the rental home doesn’t bring you any money month after month that goes straight to your pocket (or bank account) after paying all expenses like the mortgage, the property tax, the home insurance, the utilities (city and county) and repairs, it’s not worth it. Buying a rental that you pay into month after month is called feeding the alligator (or crocodile, I can’t remember which!) because eventually they say it will eat you!

While this is a good idea and a pretty good gauge (not to mention an interesting picture!) I don’t know how realistic this might be in a place like California. There are states where cashflow is better from what I hear, but traditionally, appreciation is the reason investors buy homes in California. However, it is still a good measure of a rental home to ensure that you are not paying too much out of pocket to hold on to the property. The idea is to have most expenses taken care of with the rent payment so that you’re not eaten by the alligator. Or crocodile.

Real Estate Good Idea #3: Appreciation

This is a reiteration of the earlier point, but I had to mention it separately to draw attention to it. If I had a dollar for each time someone has walked into an Open House and said, We used to live in this neighborhood. If only we had kept our home as a rental. The prices right now are just crazy! We could have got so much more for it! Coulda, woulda, shoulda. Well, the real estate investors turn this around. They hold on to a home for as long as they can and then sell high.

If you buy low, hold the home as a rental, have the tenants pay the mortgage (even if you pay some smaller costs associated with the property like utilities) and then sell high, preferably after the mortgage is paid off, you reap some of the benefits of appreciating property values and in some instances these can be substantial.

Real Estate Good Idea #4: Depreciation

While you are looking forward to the investment property appreciating, you can also look forward to the property depreciating! Depreciation is a tax advantage landlords have. According to the IRS, different kinds of property held for investment purposes depreciates over a certain amount of years until it it worth nothing and so “depreciation” is a deduction you can claim on your income tax return for investment property that is owned by you. This also can be a substantial advantage financially and sometimes the only reason certain investors choose to buy real estate.

Real Estate Good Idea #5: 1031 Exchange

The problem, of course, arises when you have made a huge profit in real estate. Now the IRS wants you to pay taxes on it! It’s called capital gains. What can you do? For one, you could just pay the taxes and keep the rest of the money liquid for when you want it. Or you can do a 1031 exchange. 1031 – or Section 1031 – is simply the tax code which refers to this kind of an investment property exchange. Basically, a 1031 exchange involves selling your investment propert and buying a “like-kind” property of equal or higher value. If you do that, you can defer taxes on any profit you may have made.

There are many companies, usually sisters of title companies, that specialize in 1031 exchanges which you should contact before you sell or buy if you wish to do a 1031. There are very specific rules you must follow regarding dates and real estate values for a successful 1031 exchange. However, it is a great tool and many real estate investors use it to their advantage.

Here are then the basic good ideas about investing in real estate. As I write these, a few more come to mind and, no doubt, I will have another post soon about some more good ideas in real estate! Until then, feel free to let us know your own.

Good Ideas in Real Estate

Tired of reading all the bad news in real estate? Well, you’ve come to right place. I’m currently working on compiling a list of good ideas in real estate. Now you might ask, what exactly do you mean by good ideas in real estate? Basically, it’s a list that I intend adding to which comprises of great things people have thought of that adds value to our homes or our rentals. It can be construction-related, such as solar panels on the roof, for instance or a way not to get knocked off your feet, such as an impoun account. With all the bad news out there currently, we thought some happy music might break the monotony. Enjoy! (But let me remind with my legal disclaimer here that none of this constitutes legal or advice.)

Real Estate Good Idea #1: Bi-Monthly Payments

This was a concept promoted most vehemently in the recent years by David Bach in The Automatic Millionaire. Basically, it involves making bi-weekly payments to the mortgage company of half the mortgage payment. So if your mortgage amount is $1000, a bi-weekly payment would be a payment every two weeks of $500 each. A lot of the times this kind of payment helps with cashflow since many people today get paid bi-weekly and also takes years off your mortgage.

This is how it works: a monthly payment makes 24 mortgage payments in a calendar year. However, there are 52 weeks in a complete year. So with bi-weekly payments, instead of the usual 24 payments, you make 26 payments – that’s an extra mortgage payment that goes directly toward the principal, not the interest. Thus, on average you can cut off seven years from your 30 year mortgage. Some mortgage companies charge a hefty fee to be enrolled in this program however which can be easily sidestepped with some planning and an extra mortgage payment a year. Same difference!

Real Estate Good Idea #2: An Impound Account

This is also referred to as “an escrow” many times, but I like to call it an impound account so we don’t confuse it with a home purchase escrow that takes place at a title company. Basically, an impound account – as I’m sure all homeowners know – is set up by and at the mortgage company where money toward your property taxes and home insurance is saved.

A little more is paid by you every month with your mortgage and is reserved in safe-keeping by the mortgage company. This helps you not have a heart attack when those fated bills arrive because the reserves pay for them. Not everyone needs an impound account, however, most people feel comfortable paying a little more each month with their mortgage because they would rather not have to remember to set money aside themselves each month to cover the tax bill.

Real Estate Good Idea #3: Making 15 Year Payments on a 30 Year Mortgage

This is an idea I recently came across here. Many people like the idea of a 15 year fixed mortgage instead of a 30 year. While getting a 15 year fixed mortgage does provide for lower interest rates, lesser interest overall in the mortgage terms and just the psychological relief of debt for just 15 years to many people, it can cause cash flow problems due to its inflexibility.

Kevin of the No Debt Plan suggests you keep your 30 year fixed, calculate the difference and make your 15 year payments. The extra will go to the principle and instead of 30 years, your mortgage will be paid off in 19 years. Not a bad plan if you want a shorter mortgage without refinancing and the flexibility during some months when money is tight. This idea does not appeal to everyone however because there is still a significant difference in how much interest you will pay over those four years, even while making extra payments.

Real Estate Good Idea #4: Home Mortgage Interest Deduction

Usually, making those mortgage payments every month, month after month isn’t fun, unless you’re one of those people that enjoys watching the principal when you do so and watching the number go down (slowly, very slowly). But tax time is a good time to be glad for making those mortgage payments because the interest you pay on your home is tax deductible. The home interest by itself is usually enough to warrant itemizing deductions for a lot of homeowners because it exceeds the standard deduction afforded to them.

Around tax time, you will receive a form 1098 from your mortgage company that tells you the total interest you have paid through the year. It usually is a good idea to double-check the number, especially if you make your mortgage payments earlier. For example, if you’ve made your January payment early, ie. in December, it’s a good idea to see if they added that in. If not, you might want to mention that to your tax accountant.

Real Estate Good Idea #5: Refinancing your Mortgage

This one can seem a bit controversial now that so many people have received bad mortgages but refinancing, if done right, can save you thousands in interest payments. Just be sure you understand the kind of mortgage you get. Many people will say you should refinance if you can save a percentage or half percentage point on your interest. The best way to tell is to use this calculator and look at your family budget. Remember that if you choose not to pull cash out of your home, most refinances are cheaper in terms of interest and fees. Bankrate also gives you an idea of the national average for 30 year and 15 year fixed, but it’s a good idea to talk with a mortgage professional and see what your real interest rate is to get a more accurate picture of how much you would be saving.

Well, that’s it for today’s installment of good ideas in real estate. Next week, I’m going to be focusing on good ideas for investment real estate. If you can think of a few or want me to focus on a specific area in real estate for ideas, feel free to contact us and let me know.

What’s so Scary about an REO?

Happy Halloween everyone! And if you’re wondering what’s the scariest thing on most home buyers’ minds today, you’ve come to the right place for an answer. Although most buyers are excited about the opportunities REOs (foreclosures – REO stands for Real Estate Owned by a bank, for the uninitiated) present in today’s real estate market, especially in the greater Sacramento area, I find that many are also concerned about buying a home that can have many unseen problems which may not show up until long after escrow closes. Today, I am here to address some of their concerns. Boo!

How a Home becomes an REO
As explained earlier, an REO is a foreclosure. When you buy a home in California, unless you pay cash for it, chances are you will have to finance the purchase. A home is financed in much the same way a car is financed – you sign legal documents called “a note” for a loan. The lender gives you the money which you agree to pay back with interest over a term of (usually) 30 years. If you default on the loan, the lender can then take the home back and sell it to someone else. The legal process of taking the home back for default on a note is called foreclosure. Although the process in California includes a trustee who is given the note and who is notified by the lender to begin foreclosure proceedings in the event of non-payment the basic idea remains the same: default on the mortgage and lose the home.

The lender is required by law to send a homebuyer who has defaulted on the loan a Notice of Default. This notice is recorded at the county clerk recorder’s office in the county where the property is located and is a document of public record. This means that anyone with an interest in the property may see it. The notice states when the lender is planning on foreclosing, ie. the date of the trustee’s sale and the outstanding amount the homeowner can pay to cure the default and stop the trustee’s sale.

Usually, as you can imagine, the default is not cured and the trustee auctions the property to anyone who will buy it. If there are no buyers at the trustee’s sale, the house becomes a foreclosure and is referred to as an REO – real estate owned by the lender.

What you should Know about an REO as a Homebuyer

Most lenders are not in the business of real estate; they are in the business of finance. And so, the house acquired by a bank through a foreclosure is usually put back on the open market. To come up for a sales price for the property, the bank hires a Realtor® and asks for a BPO – a Broker Price Opinion. The Realtor® appraises the property based on similar properties also known as “comps” and offers to list it. Since most foreclosures are fixers, they are usually placed on the market for a substantially discounted price.

As a home buyer of a bank owned home, your concerns are justified. An REO is usually a fixer. The most obvious reason for this being the family that was foreclosed upon was low on finances. If they didn’t have enough to make their mortgage payments, chances are there are quite a few things about the house that went unrepaired. This is also called deferred maintenance. Deferred maintanence can be a small problem, like a leaky faucet, or can hide bigger problems, like a leaky faucet that rotted the bathroom sub-floor.

You should also be aware that as a purchaser of an REO, you don’t receive full disclosure about the house. The bank is not required to provide you with a Transfer Disclosure Statement, partially because the lenders have never been in the home and are unaware of what exactly is wrong with it. They are also unaware of other problems a property may have, like boundary line disputes, and are unable to let you know if, say, there has been a death on the property.

How to Resolve your Concerns

Does this mean you are left completely at the mercy of Chance when you decide to buy a foreclosure? Sure, the price is deeply discounted, but does that make up for everything else? While that may be a question only you and your pocketbook might be able to answer, here is the most important pointer to take the sting out of potential problems: Always, always, always get the inspections!

Brokers recommend a variety of inspections, including pest, roof, septic system and a complete home inspection. Disregarding any of these inspections can be a big mistake on the part of a homebuyer. While most banks will not repair any items listed as potential or real problems during these inspections, you can get an idea of how much work is involved in making the home as habitable as you want it and decide if the asking price is worth the risk and work involved. The price you pay for the inspections (approximately $1000 for all included) is well worth its weight in gold.

You, The Smart Homebuyer

Okay, great! So you got the inspections done! The home seems structurally sound, but it looks like the roof can’t be certified. Can you knock off $10,000 from the asking price because the lender won’t put a new roof on? Not so fast! You should take into account the fact that the lender has already figured deferred maintenance into the price of the house. While there is no overt harm in making a lowball offer, you should also apply the comps in the neighborhood and balance them against your own timeline and budget for a house. Also remember that escrows today take longer (45 to 60 days as opposed to the 30 days from a while ago) because lenders are more careful about checking documentation.

With so many bargains out there in foreclosures, if you are serious about buying a home at a deeply discounted price, chances are you will find what you are looking for. So, go ahead. Get the facts, look hard and deep and don’t be scared to make an offer when you find the right one!

First-time Buyers Might Have a Margin of Opportunity Now

First-time buyers have traditionally bought with zero down, or the help of a gift from a relative for a down payment. However, this traditional method of buying a home might be in trouble. According to my mortgage sources, at least two mortgage insurance companies will limit mortgage insurance to 95% loan to value by the middle of January in California. Chances are the others will follow.

This means that mortgages might have to be reduced to 95% of the value of the home. Therefore, no 100% financing.

First-time buyers, if you have a house in mind, now is still a good time to get in before the loan available to you is gone. Escrows are typically thirty days, so there might still be time to get in before this rule changes, as so many others have in lending lately.

Beyond the middle of January, be prepared to have at least 5% down to buy a home. Gifts from relatives however can count toward that 5%.