Investors/non owner occupied buyers are out. Owner occupied buyers are in. The last of the great bargains offered due to foreclosure are only available to you if you plan to make the property your primary residence. After 18 months of investors buying everything they could, both FNMA and HUD will only sell their property to owner occupied buyers. They are going fast. These properties are being sold way below market price. You can check your zip code at foreclosure.com or Homepath.com or Hudhomestore.com. Be prepared to do a lot of work. These properties usually take more than paint & carpet to fix up. Make sure you have an experienced home inspector evaluate the property prior to closing. You also will need an experienced contractor to quote the repairs needed. Hopefully you are resourceful and can do a few things yourself. At some point very soon, HUD & FNMA will dramatically raise their asking prices for new properties coming on the market. Now is the time, the final time to buy these. Right now is exactly like the early 1990’s when the Resolution Trust Corporation closed 747 Savings & Loan banks with total assets of $394 billion. They sold off all real estate at 30-50% discounts. I was able to buy two Florida condos and resold them five years later at a 50% profit. I wish I had more money at the time. Hesitate today and you will wait another 20 years for such bargains.
Archive for March, 2013
When you research the ‘Wealthiest People in World History‘ you will find a common thread. It’s real estate. They either made their money owning real estate or they made their money some other way, then to save and increase their wealth they acquired real estate. Search Google or Wikipedia and you will see this is true. Make a list of the 10 highest net worth people you know and ask them: ‘Do you own or rent?’. I remember years ago my Aunt bought a brand new Cadillac and I asked her how she could afford it. Her answer was “I traded in my old Cadillac”. Same is true with buying the bigger house. Rarely does someone just move out of their apartment and buy the $500,000 new home. Usually they had to sell then move up in price. But how do you do this? LEVERAGE! Why leverage and who does this?
Warren Buffett, Bill Gates, Donald Trump and just about every billionaire business person in the US. Buffett sold shares in Berkshire, Gates sold shares in Microsoft and Trump mortgaged as much as he could on every property he owned. Using other peoples money, they each leveraged their ownership to amass billions. Right now is the most advantageous time in history for the average person to use leverage to buy real estate. Here are two examples:
#1 $150,000 house: 3% down, seller to pay all closing costs, interest rate below 4%. You could rent this house for $1000 or more per month or buy it with monthly payment of $600 PITI (principal, interest, and taxes). If the house appreciates to $200,000, your $4,500 down payment now is worth $54,500. That’s is a 1000% gain on your money.
#2. $400,000 house: 10% down, seller to pay all closing costs, interest rate below 4%. You could rent this house for $2,500 or more per month or buy it with monthly payment of $1,600 PITI. If the house appreciates to $520,000, your down payment now is worth $160,000. That is a 400% gain on your money. In many areas of the country, example #1 and #2 houses are being bought at the same price as in the year 2001. To buy today at 2001 prices and watch it appreciate is very possible. Why do you think Blackrock Group bought 16,000 single family houses in the past 12 months. These professional investors know were the value is.
“Mortgage rates are below 4% and house prices are at 2001 levels.” In one year from now I will not be able to make that statement.
First update is on the Short Sale blog of January 29, 2013. On March 5th, the bank changed their mind and took the property to the court house steps to sell at the monthly foreclosure auction. Opening bid was less then my contract price and guess what happened, nobody bid. That means the bank is now the outright owner of the property. Their next step is to list it with an agent. Why didn’t they just close last year? The bank would have had their money and they could have re loaned it out and made money. Instead, the bank keeps spending time and money going through the motions. In the mean time, I did visit the property last week. As expected, vacant houses deteriorate each month. Now more work needs to be done to the make it livable. What a shame.
Second update is the Nothing for Sale in my Subdivision. Blog date December 5, 2012. Finally a house came up for sale. It was with a full service agent and seller paying a 6% commission. The house was Under Contract in four days. Why would a seller pay 6% commission with buyers ready to leap on the first house up for sale in over six months. If you feel you need the help of the MLS, you need to at least use the Flat Fee agent and save thousands of dollars. I am seeing many properties sell this fast and with multiple offers.
For the past few years, it has been hard to talk about real estate without the word ‘foreclosure’ coming up in the discussion. The foreclosure process is determined by state law. Some states only use ‘Judicial’ process. This means all foreclosures must go through the courts and in front of a judge. Florida is a prime example, with the process taking five months or more before the lender takes your house. Because of recent problems in Florida with ‘Robo signing’, Federal law suits against banks, and other delays the average Florida foreclosure takes 880 days. That number is now dropping as the banks get their act together. Other states use a ‘Non Judicial’ process, this means posting notice in the local newspaper for 30 days, then going to the court house steps. Georgia is a prime example, with the process taking less then 60 days. Learn about your state at Judicial versus Non Judicial States.
Some recent statistics: In February, nationwide one in every 849 homes had a foreclosure filing, with Florida being the highest for the sixth month in a row. The total is down 25% from a year ago, so things are improving. In addition, less homeowners are ‘underwater’ from a year ago.
You can get an adjusted number. The Federal Government does with the monthly CPI number (also called the Inflation Index). Many years ago they removed ‘food and energy’ and they continually change the formula so it does not look so bad. You to can take advantage of changing the formula of your credit score. VantageScore, which has been out since 2006, is used by the three credit bureaus: Experian, Equifax and TransUnion. These three have now changed the formula to eliminate some of the unfair items. Items such as; Natural disaster problems, former delinquencies which are now paid off, etc. New items added are timely Rents and utility payments.
Seven of the top 10 financial institutions and four of the leading mortgage lenders now use VantageScore. If your lender doesn’t use this, then you need to find a lender that does. Your VantageScore will be between 300-850, with higher being the best.
Long term trends are hard to reverse. Just like the saying goes “the larger the ship, the longer it takes to change course”. So goes the mortgage market. It has now been over 30 years since the peak of interest rates in 1982 and for a year now the rates have been in a narrow range, forming a bottom. The reverse direction is starting. Corporations and homeowners have been refinancing to lower their payments now for the past few years. Attached is a 45 years graph. This weeks news was that banks profits, cash available and financial strength are at an all time high. The banks new problem is that their old high interest loans are now maturing and they need to deploy all of the cash. But where? It is quicker, easier and more profitable for the bank to loan one corporation $1 billion dollars then it is to make 50,000 mortgage loans of $200,000 each. Even when the Federal Government guarantees those mortgage loans, the banks still resist. We think this is about to change. The banks have been waiting for higher rates to make those mortgage loans and you should see this happen over the next two years.
HELOC, short for ‘Home Equity Line of Credit”, is gaining popularity. What are the advantages, who is getting them, why get one, and where do I get one? If you are in the market for a new home or thinking of refinancing, a HELOC may be for you. There are many advantages compared to a conventional mortgage loan: First, closing costs are either ‘zero’ or minimal, especially compared to a new mortgage. Second, the interest rates are equal or lower then a regular mortgage. Three, the time it takes to get approved and close is much quicker. Fourth, payment and repayment options let you control how much and when you pay. The main disadvantages is the interest rate may vary during the term of the loan and that the amount you borrow compared to the value of your property may be lower than with a conventional loan. More and more people are paying cash to close on their property, then going to the bank for a HELOC. This does take cash, but if you were planning on having a loan to buy your property this speeds up the closing process and gives you time to shop around. If you want to refinance and have some equity in your property, this saves you thousands of dollars in closing costs. HELOC’s are offered at most major banks and credit unions. Right now, both BB&T and SunTrust Bank offer these at 2.99% interest. Federal Truth in Lending Act applies, so make sure you receive a written estimate of all closing costs, terms and APR. This Act gives you 3 days to cancel once the account is opened.