Housing Market Ebook
First Time Home Buyers Guide
If you are getting ready to purchase your first home or if you think you can't afford to purchase your first home, don't make another move until you have read this important information! Every year, Federal, State and Local government and community development programs help thousands of people obtain there first home.
The three biggest differences between commercial real estate and residential real estate include the following i Commercial real estate has the potential to make you rich with just one deal. Doing one commercial deal the right way can generate you a profit several times your yearly salary in addition to providing you sizable monthly income as long as you own the property. Residential real estate can produce a sizable profit as well, but it will not generate anywhere near the cash flow that a commercial property will. You'll receive one check per month from a single-family residence, but you can receive several hundred checks per month from a commercial property. about life as they are. Until you get involved, it's difficult to really understand just what your life could look like. Investors of residential real estate think of one monthly check and one tenant, they wait for appreciation (which may never come), and they're limited in ways of creating massive value for their property.
The advantage of starting off with residential properties is that they're a great way to jump into the exciting world of commercial real estate investing. We both started off investing in small- to medium-sized multiunit properties. This was a great experience because it allowed us to make the jump to get started. For most people, getting started is the hardest part. However, after you've started investing in commercial real estate, you'll have a difficult time going back to the old grind of the rat race that so many others find themselves trapped in.
The National Association of Home Builders produces a housing market index based on a survey in which respondents from this organization are asked to rate the general economy and housing market conditions. The housing market index is a weighted average of separate diffusion indexes (1) present sales of new homes, (2) sale of new homes expected in the next six months, and (3) traffic of prospective buyers in new homes. Responses are rated on two scales including good, fair, and poor and very high to high, average, and low to very low. The diffusion indexes are then set to a scale of 0 for poor and 100 for good and then variations for the middle responses. A level of 50 means that the number of positive or good responses received from the builders is about the same as the number of negative or poor responses. Obviously, levels above 50 reflect good activity and levels below 50 reflect poor activity.
In this assignment, the trader should select the top equities that represent aspects of the housing sector and start watching their weekly performance. When these housing equity stocks start probing their weekly support, resistance, and trend lines, the trader will have clues as to a potential change in the housing market. As discussed earlier, housing provides a strong indicator regarding interest rates throughout the world. For example, as 2006 ended, the situation in Great Britain regarding housing indicated a very strong housing market and therefore supported sentiment of interest rate increases by the Bank of England. In 2006, housing prices inflated by nearly 10 percent in Great Britain. Economist Diana Choyleva believed prices could rise by as much as 15 percent in 2007. But she warned that if the Bank of England did not prevent people's taking on excessive debt by raising interest rates, it risked laying the foundations of another major collapse. In January 2007, she said, The...
I want to state right from the get-go that the only thing that a straight or naked real estate option grants is an irrevocable right to purchase the property under option within the option period. Nothing more An optionee has absolutely no beneficial or equitable interest whatsoever in a property under option. Furthermore, in my professional opinion, the creation and sale of a straight or naked real estate option does not violate the due-on-sale clause contained in government-backed and conventional mortgage or deed of trust loans secured by a lien on residential property containing five or fewer units. Again, in my professional opinion, there is absolutely no way that any lender can legally exercise its option pursuant to a due-on-sale clause on discovering the creation and sale of a straight or naked real estate option. Why do I hold this opinion Because Title 12 of the Code of Federal Regulations refers specifically to lease-option contracts, but makes no mention whatsoever of...
Detached and attached condominiums small apartments including duplexes, triplexes, and multiple-family residential properties up to 20 to 30 units commercial properties, including office, industrial, and retail and raw (undeveloped) land. We also cover indirect real estate investments such as real estate investment trusts (REITs) that you can purchase through the major stock exchanges or a real estate mutual fund.
Department of Housing and Urban Renewal (HUD) defines predatory property flipping as the practice whereby a property recently acquired is resold for a considerable profit with an artificially inflated value, often abetted by a lender's collusion with the appraiser. And on June 2, 2003, HUD imposed a rule that places time restrictions on the resale of properties financed by Federal Housing Authority (FHA) loans. This was done in an effort to try to curb predatory lenders and dishonest real estate investors from ripping off unsuspecting home-buyers by reselling or flipping properties at artificially inflated sale prices. However, as far as I am concerned, the only thing that this rule has accomplished is to stop honest investors from using FHA loans. I suspect that crooked investors, appraisers, and lenders are still using FHA loans to perpetrate fraud they are just using more sophisticated scams, which HUD has not caught on to yet For a detailed explanation of HUD's rule...
While the research for this book began in the spring of 2004, the idea was born nearly two years earlier when we interviewed Cristina Martinez for our first book, The Millionaire Real Estate Agent. Cristina had built an amazing real estate sales business that generated over 4 million in gross income each year by catering to residential real estate investors. The stories she told inspired us and pointed us down the winding path that ends with these pages. Thanks, Cristina.
Most people think commercial real estate is all about apartment rentals. Even though residential properties are a big part of commercial real estate investing, other types of properties make for excellent investment opportunities as well. For instance, commercial real estate includes offices and warehouses, retail centers, and even undeveloped land.
The largest share of the mortgage market is comprised of residential loans of 'A' quality credit. These prime quality mortgages are further subdivided into A and Alternative A (Alt-A). Defaults rates are expected to be less than 2 per year, even in a stressed economy and housing market. Most mortgages are considered to be of A quality. Alt-A is a vaguely defined category that has A-quality attributes, but may describe loans bordering on subprime quality. Below prime credit is the world of subprime mortgages. There is no official rating system for grading subprime mortgages, and rating agencies have differing guidelines for credit classification. Subprime mortgages are graded B, C, or D. Default rates in lower-quality subprime mortgages can exceed 20 per year. Securitizations backed by subprime mortgages are usually called as ABS and are not covered in this chapter.
When valuing residential properties, real estate appraisers generally follow a series of standards set forth by professional associations (the most well-known is the Appraisal Institute). Sales of comparable properties are the general benchmark for value. Appraisers look not just at housing sale prices of comparable houses, but also at the financing associated with the sales of these houses. If the house was owner-financed (discussed in Chapter 9), the interest rate is generally higher than conventional rates and or the price is inflated. The price is generally inflated because the seller's credit qualifications are looser than that of a bank, which means the buyer will not generally complain about the price.
Some commentators have stated that your home isn't an investment, because you're not renting it out. We respectfully disagree Consider the fact that many people move to a less costly home when they retire (because it's smaller and or because it's in a lower cost area). Trading down to a lower priced property in retirement frees up equity that has built up over many years of homeownership. This money can be used to supplement your retirement income and for any other purpose your heart desires. Your home is an investment because it can appreciate in value over the years, and you can use that money toward your financial or personal goals. Home Buying For Dummies (Wiley), which Eric cowrote with residential real estate expert Ray Brown, can help you make terrific home buying decisions.
I You must start off in residential real estate to get into commercial real estate. There's no rule, rhyme, or reason stating that you must first invest in residential real estate in order to make the leap into commercial real estate investing. These fields are two different animals, two different languages, and two different consumers. It's like comparing apples to oranges. controls in commercial real estate investing. If you compare it to residential real estate investing, what happens if you rent out your single-family home and the tenant moves out What's your monthly income then The answer Nada. If, on the other hand, you own a 24-unit apartment building and one tenant moves out, what's your monthly income Answer 23 paying tenants worth of rent What's more risky We rest our case.
Requests have been recently approved. This strategy is covered in Chapter 7. Keep in mind that a single-family house that can be rezoned for use as a professional office has a lot more profit potential than a house that can be used only as a residential property because the monthly rental rate for a professional office is much higher than the rental rate for a single-family house. And the value of a piece of income-producing property is determined by the annual amount of rental income the property generates the higher the income, the higher the resale value. When you look at a property with rezoning in mind, you must always ask yourself the following three questions
The relationship between interest rate expectations and the value of a currency is demonstrated in other countries. When the Governor of the Bank of England on June 26 said that the British housing market may be more fragile than expected, the British pound proceeded to fall against the dollar. This was an example of the currency market reacting to a surprise. At first there was an expectation of higher interest rates, and that expectation was dampened by the statements. In reac-m i tion to this event, an Any confirmation that the housing market has started to cool off and house price inflation is about to decline would lead to a substantial downward revision in the BOE rate hike expectations, prompting a drop in the pound.
Some lenders like large apartment buildings and some like the smaller ones. In a competitive market, rates can vary in points and fees quite a bit. Most loans on investment property aren't the same as your traditional residential property or an owner-occupied loan. Your appraisal will also be more expensive, as well as the fixed costs and monthly expenses.
Government agencies such as the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) guarantee loans made by lenders to qualified individuals. When these home buyers fail to make their payments, the lender goes through the foreclosure process and ultimately repossesses the house. The government pays the lender the guaranteed loan amount and then takes possession of the property. These FHA and VA repos are then listed for sale through real estate agents approved by the Department of Housing and Urban Development (HUD). Typically, real estate investors don't find these properties as attractive as some other real estate investment opportunities, because they're usually offered at or just a shade under market prices. Qualified first-time home buyers should look for these FHA VA repos, because they're often available with favorable financing, including low, or no, down payments.
What is it that really creates value in commercial real estate Well, in residential real estate, such as single-family homes, what creates value is location. Location, location, location is the saying that you always hear. The most expensive homes are in the best of neighborhoods, right But location isn't the only factor that creates value in commercial real estate. In fact, there are two factors that are actually more important than location use and the lease. We cover these in the following sections.
A lease is a written legal agreement between the lessor (the landlord) and the lessee (the tenant) whereby the lessee compensates the lessor (by paying rent) for the use of the property for a specific time period. There's no such thing as a typical commercial lease, but here are a few main differences between a lease for a commercial property and a residential property (an apartment unit, for example)
Just like a budding romance, the chemistry has to work. It will do you no good in the long run to force yourself to work with an agent who disgusts you, no matter how good you think he or she may be. Obnoxious agents are best left to service obnoxious home buyers, since there's no shortage of either one out there. I mention this because it's very important to develop a relationship that can last a long time. A lasting relationship is much easier when you like each other. I've had just two agents in the last 20 years or so.
Remember that lease options aren't just a great way for real estate investors to buy property they're also an opportunity for many first-time home buyers to ease into home owning. They're often in high demand relative to their supply, so lease options are rarely advertised you may even need to run your own ad seeking lease options. Another way to track down a possible lease option is to respond to ads for house for rent. When you own a property that you want to use a lease option to sell, a small ad often brings a large response. Check out Chapter 16 for more information on using a lease option as an exit strategy.
How can you get to know people who are aware of the challenges that may come up with the property itself Did you think of property managers Good job if you did. What about county health department officials These folks will know about commercial properties that are in trouble because necessary repairs have not been made. Don't forget about everyone else who's involved in the real estate process, including commercial real estate brokers, residential real estate brokers, title agents, mortgage brokers, bankers, bankruptcy attorneys, and eviction services.
When you buy a property at auction or from a bank, you often agree to purchase it as is. In these cases, you don't have the benefit of a home inspection before you lay your money down. When you're buying pre-auction properties from distressed homeowners, however, the purchase agreement should state that the transaction is conditional upon the home passing inspection.
Money flows in the equity markets move from one sector to another as the economic business cycle goes into an expansion mode, then into a contraction, and then back into an expansion mode. Foreign investors may wish to take part in these changes as well, therefore increasing capital flows to the United States, which will have a short-term supportive boost for the dollar. As of the middle of October 2006, what we were possibly entering would have been considered an early-stage economic contraction. There were many factors at play that would lead to that conclusion. For starters, the Federal reserve had raised interest rates by 0.25 percent 17 consecutive times over a two-year period, bringing the federal funds rate to 5.25 percent. It concluded its interest-rate-hiking campaign based on concerns that it might choke off liquidity, bringing more risks to economic growth than the risks of inflation. That was a pretty good tip-off that the economic expansion phase just might moderate. As a...
Most towns and cities, both large and small, have five separate, but distinguishable, sections where residential properties exist. There are obviously overlapping and combination locations but, for the most part, the sections are quite separated and, if you think about it, you'll know exactly where I'm talking about in your town. Here are the five locations. You'll recognize them, I'm sure.
Barbara didn't have to ask that question. More than once she had vacationed in New Zealand with her physicist husband, Pat, and they both loved the country. But on her current visit to Auckland, the country's principal port on North Island, she has her eye on more than the gorgeous landscapes. That's what thirty years of experience in commercial and residential real estate in the United States and abroad will do to someone.
If your investment strategy requires you to hold real assets, you may be exposed to very large trading costs. Real assets can range from gold to real estate to fine art and the transactions costs associated with trading these assets can also vary substantially. The smallest transactions costs are associated with precious commodities - gold, silver or diamonds - since they tend to come in standardized units. With residential real estate, the commission that you have to pay a real estate broker or salesperson can be 5-6 of the value of the asset. With commercial real estate, commissions may be smaller for larger transactions, but they will be well in excess of commissions on financial assets. With fine art or collectibles, the commissions become even higher. If you sell a Picasso through one of the auction houses, you may have to pay15-20 of the value of the painting as a commission. Why are the costs so high The first reason is that there are far fewer intermediaries in real asset...
If you're trying to determine the direction of the next major move in the U.S. dollar, here's a key question Do you expect the U.S. economy to spiral lower into deteriorating economic growth or do you expect a bounce-back as housing market conditions begin to improve toward the end of the year It's the housing market, stupid
A major victory and block lumbering of all spotted owl habitats. At the same time, the United States imposes a quota on Canadian lumber. Suddenly, lumber prices shoot up. However, housing may be static. The increasing lumber price forces builders to raise prices in an inelastic housing market. As a result, housing sales fall. We see that lumber prices can influence housing. Therefore, part of our fundamental analysis might be tracking lumber to forecast housing.
Nonresidents hold all types of real estate in the country commercial, industrial, and residential. With regard to residential real estate, which is the main focus here, the majority of nonresident real estate is owned by French nationals, due to the status of Morocco as a protectorate of France in the first half of the twentieth century. The market in apartments in commercial centers of Morocco has been brisk since 2000. Some foreign nationals invest in these apartments to use as long-term residences for business purposes, whereas others lease or rent them to other nonresidents, particularly tourists. Again, this investment has been led by the French, but other nonresidents have recently been venturing into the country as well, attracted by the favorable business and vacation climates.
Local and county public health departments keep records on commercial and residential properties that have been cited for health code violations. In some instances, the health violations are severe enough for the health department to declare the property unfit for human habitation and order it vacated.
And a whole lot ofanxiety about a cooling-offin the housing market. You could easily worry yourselfinto inaction. But don't. BusinessWeek's 2006 Investment Outlook is basically bright Economic growth is brisk, corporate profits are climbing, and the Fed's long series of interest rate hikes is nearly over. All told, that's a recipe for higher stock prices in the new year. It's not 1999 again, but you have a good shot at earning total returns of9 to 10 .
You won't find such wonderful financing options for larger apartment buildings (five or more units), commercial real estate, and raw land. Compared with residential properties of up to four units, such investment property generally requires more money down and or higher interest rates and loan fees. Please see Chapter 8 for more details.
In the wake of the 2000-2002 stock bear market, two megatrends hit their stride rising energy prices and an overheated housing market. As of 2005, these two issues became major news items with tremendous ripple effects across the national economy. For the growth investor, strategy became clear. Find value-oriented companies with solid fundamentals that are well-positioned to benefit from these megatrends. What's the result From 2002-2005, many energy-related and housing-related stocks skyrocketed. As oil surpassed 65 a barrel and gasoline hit 3 a gallon, most oil and oil services companies saw their stocks go up 50 percent, 100 percent, and more during that three-year time frame. Housing stocks were even more impressive. In addition, companies that cater to these industries also prospered. Mortgage firms that were publicly traded also posted impressive gains.
The Fair Housing Act prohibits discrimination in residential real estate transactions and makes it illegal to coerce, intimidate, threaten, or interfere with people exercising their rights under the Act, or assisting others in exercising their rights. Discriminate in making loans for, or secured by, residential real estate.
This program expands affordable housing in the United States by linking global capital markets to the nation's housing market. Ginnie Mae guarantees investors (security holders) the timely payment of principal and interest on securities issued by private lenders that are backed by pools of Federal Housing Administration (FHA), Veterans Affairs (VA), Rural Housing Service (RHS), and Public and Indian Housing (PIH) mortgage loans. The full faith and credit guarantee of the U.S. government that Ginnie Mae places on mortgage-backed securities lowers the cost of, and maintains the supply of, mortgage financing for government - backed loans.
When you're shopping for a car, you ask a dealer or a mechanic for advice. When you're in the market for a diamond ring, you ask a jeweler. In the same way, when you're looking for foreclosure properties, your best leads often come from real estate professionals, because they specialize in the housing market where you invest.
The main reason for the aussie's 2004 underperformance was the accelerating decline in home prices, threatening to halt the nation's longest economic expansion. Despite a 46 percent increase in copper prices and an increase in GDP growth from 3.7 percent in 2003 to 3.1 percent, many home buyers were forced to let their properties go into foreclosure, thereby impacting consumer expenditure.
The New Zealand dollar is better positioned to hold its own Its central bank is one of the few that can keep pace with
Imports, suggesting domestic demand is soft. Some measures of consumer confidence stand at two-year lows despite a fairly tight labor market. Unemployment in Australia stands at 5 percent, down from 5.7 percent a year ago. Rising gasoline prices and a softer housing market appear to have taken their toll.
In terms of popularity, Elmer Frank adds, Retirement accounts have become one of the most frequent sources of pledged collateral for our firsttime home buyers. We don't even require that the account belong to the buyers. We'll accept funds from any close family member. On no-down-payment mortgages, we usually like to see 30 percent, but for good customers, we've gone as low as 20 percent.
Job growth is another fundamental element in determining demand for real estate. Economists generally predict that a new household is needed for every 1.5 jobs created. So if a new employer moves into the area and brings 150 new jobs, the local real estate housing market will need approximately 100 new dwelling units. Of course, these new jobs also positively impact the demand for commercial, industrial, and retail properties.
In relative valuation, we value an asset based upon how similar assets are priced in the market. A prospective house buyer decides how much to pay for a house by looking at the prices paid for similar houses in the neighborhood. A baseball card collector makes a judgment on how much to pay for a Mickey Mantle rookie card by checking transactions prices on other Mickey Mantle rookie cards. In the same vein, a potential investor in a stock tries to estimate its value by looking at the market pricing of similar stocks.
Before you plop down your money or borrowed money on a property, always inspect it as closely as possible with your own two eyes, carefully record your observations, and add the details you gather to your growing property dossier. In the following sections, I provide an exterior home inspection form to complete, and I lead you through the process of performing your due diligence in the field.
McMoore had priced the lots fairly and the housing market was strong enough to warrant tying up the initial cash. McMoore had also made the down payment reasonable, so once the builders had invested the 60,000, they could move forward with preparations to build. They would arrange construction financing through local lenders to cover the cost of the home (plus a little overage). The excess of the loan, if any, would help pay off the lot. When they were ready to go, the lender would advance 50,000 for the first lot and the lot would be released from the blanket mortgage McMoore held.
The U.S. economy has also enjoyed unusually low interest rate levels for the past few years. This has allowed the economy to grow and pull itself out of the post-2000 recession rather quickly. That was a great boost for the economy, but we are starting to get accustomed to these low interest rates. Home buyers love them because it means they can afford to buy bigger homes. Businesses love them because they can finance purchasing, research and development, and expansion at an extremely affordable rate. As debt has become less expensive, more people have acquired increasing amounts of it. The United States economy as a whole is extremely leveraged, and at some point, we are going to have to pay off all that debt.
As you've just learned, when you finance a 1-4 unit residential property through a mortgage lender, the lender will run through your total finances to calculate whether your personal income is large enough to cover all of your monthly expenses including all mortgage payments (existing and those for which you are applying).
The price per square foot is a widely used yet simple calculation most often associated with commercial, industrial, and retail properties (and sometimes used for residential properties). To find this number, take the asking or sales price of a property and divide it by the square footage of the buildings. It's only a ballpark gauge of relative value and can be limited because it doesn't factor in the location or quality of the improvements or other important issues like the parking ratio or the occupancy level and rent collections.
You might see in residential real estate). Because loans made on commercial properties are much larger than on residential properties, commercial lenders have stricter lending guidelines. So, because of the greater risks involved, commercial lenders want the borrower to invest money or equity in the property. This way, they share in some of the risks, or have some skin in the game as it is sometimes called.
One can argue that economic data on housing activity is lagging and that a trader needs to find indicators that are more coincident with activity or even leading. A valuable source for assessing housing activity in the United States is the survey releases of the National Association of Housing Builders (NAHB). According to the NAHB, The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the housing industry, especially the single-family industry. The survey asks respondents to rate general economic and housing market conditions. By looking at the HMI data for 2005 and 2006 we can discern an increasing pessimism on the health of the housing market (see Tables 1.2 and 1.3). The survey results in the summer of 2005 were at a peak on all HMI component measures. The Federal Reserve stopped increasing rates in August 2006, reflecting their judgment that the economy didn't require more rate increases. Using the HMI index, the forex trader...
The industry standard for collection loss (rent or other charges that the landlord must write off as uncollectible) is typically 0.5 percent of rental income. This is another number that seems to be acceptable as a general rule however, savvy real estate investors make their own analyses of the actual collection loss they may experience based on the strength of the tenant, the strength and depth of the local job market, the average turnover of the area overall, the amount of security deposit they hold, and the nature of local tenant landlord laws. For example, collection losses for residential properties in the Las Vegas area often exceed 2 to 4 percent, and the continued advent of pro-tenant legislation in California and other major metropolitan areas foretells increased losses to landlords because of the inability to evict nonpaying or disruptive tenants. In a weak economic environment, collection loss can be even more significant, and prudent landlords take steps to make sure that...
Now for a look at a successful hanging man. Figure 6-28 is a chart for the stock of Toll Brothers, symbol TOL. If you aren't familiar with Toll Brothers, it's a homebuilder focusing on the higher end of the housing market. If you remember what happened to the housing market in 2007, you can see why this is a good short example. Figure 6-28 shows how you could have made money when the housing market first started to tank. I'm not saying that trading housing-related stock is the way to offset any potential losses in the value of your home, but this was a chance to take advantage of the fall in value of a home-building company as it anticipated the drop in housing prices and home sales activity.
In addition to rent, other types of payments are essential elements to your income stream. Other income items can consist of late charges, returned check charges, and various ancillary income items. The ancillary items depend on the type of investment property, but for residential properties, they can consist of laundry, parking, vending, Internet services, storage, concierge service, and so on. Examples for commercial properties can include sources similar to those for residential properties, plus items like common area maintenance charges (CAM), supplemental HVAC (heating, ventilation, and air conditioning) charges, special security requirements, and telecommunications.
There are different thoughts about which type of lease is best. Many investors believe that net leases reduce the owner's management of the property, but this assumption isn't necessarily true. The owner must still ensure that the property is properly maintained. One argument against net leases is that the tenant may skimp on the maintenance of the property, which is why you typically don't see net leases in residential properties. Can you imagine a residential tenant being responsible for all of the maintenance of his rental home However, the landlord doesn't control certain expenses that are better suited to be paid directly by the tenant. For example, tenants have a direct impact on the utility usage and are more careful to conserve if they pay that expense. This is why we recommend you limit your investments in residential property to those buildings with separate meters for water, sewer, and electricity. Likewise, some commercial tenants can live with weekly janitorial service...
As we will see below, a similar pattern is occurring in other asset classes, including natural resources, private equity, and real estate.4 Increasingly, HMC's portfolio managers are looking overseas to find attractive investment opportunities. This is true not only for tradable sectors like timber and natural resources it is also the case for commercial and residential real estate. Moreover, private equity is establishing a bigger footing overseas in the context of great macroeconomic stability, a deepening of markets, and less uncertain legal and business environments.
How would you cope with this situation You had a seller agree to your spoken what if offer, you pull out your agreement, you fill it in with the seller, and then at the very end just before he signs on the dotted line he gets cold feet. He starts to say things like, What if the roof comes crashing in are you going to pay for that Or, What if the housing market collapses and I have to foreclose on the property and it's only worth 50 percent of its earlier value Or, What if my neighbor's daughter's aunt's psychic tells me this isn't a good deal Your deal is being what if'd to death
Recovery Over time, banks pull back their mortgage lending. Builders sharply cut their new developments. Rental vacancies begin to tighten the number of unsold homes begins to fall. Potential renters and home-buyers again outnumber the supply of available properties. Property prices and rents stabilize and then edge up. Eventually, as shortages again loom on the horizon, vacancies fall further. Prices take off on another rapid run-up. The construction cycle turns another revolution. Prices set new record highs.
Commercial banks operate on the primary market, where mortgages are originated and funds are extended to home-buyers, but they also sell mortgage securitizations on the so-called secondary market, to investors such as Fannie Mae, Freddie Mac, pension funds, insurance companies and other institutional investors, like hedge funds. Figure 9.3 shows investors in MBS.
Today, the public perception surrounding indoor mold is such that even the suspicion that a building has just a smidgen of indoor mold is enough to strike fear into the hearts of most prospective buyers and stop them from pursuing the property. The fact of the matter is that probably every residential property in the United States contains a small amount of indoor mold, especially in bathrooms. I have no qualms whatsoever about buying a property with moderate amounts of indoor mold. And I have bought options on properties in which all of the walls and ceilings in both bathrooms were black with indoor mold. I had the moldy drywall replaced by a professional and turned around and sold my options. I am not afraid of properties with moderate amounts of indoor mold
Unlike traditional bonds, the amount of cash flow generated by an MBS is uncertain because every home-buyer entering any one of the mortgages that have been repackaged into the MBS has the option of refinancing the mortgage or prepaying it. Of course, mortgagors will be induced to refinance their mortgage only if interest rates are lower than they were when the mortgage was originated.
This suggestion doesn't mean that the escrow should be allowed to drag on indefinitely, but the more costly the property in escrow, the more likely you are to encounter unexpected challenges in satisfying or removing contingencies. Nonresidential property transactions tend to take longer to complete because the leases are more complicated to analyze and the buyer wants estoppel certificates from each tenant. (See Chapter 11 for more on estoppel certificates.) For example, lenders, with their layers of approvals and particular requirements, often cause unforeseen delays, including phase I reports (discussed later in the chapter) on potential environmental issues (particularly for non-residential properties). Also, when the real estate market is active, appraisers can be backlogged and your appraisal delayed your loan application won't go far toward approval before the appraisal is complete.
Freddie Mac's older sister, Fannie Mae has her own Web site for homebuyers. Go to the Fannie Mae home page at www.fanniemae.com, scroll down to the area For Home Buyers & Homeowners, click Resources, and click Fannie Mae-Owned Property Search. Complete the search form to specify your desired price range and location, and click Search. While you're at the Fannie Mae site, check out additional resources for home buyers, including information on lenders and mortgages. If you're an investor who's having trouble finding financing for an investment property, you may be able to finance the purchase through a local lender who's connected with Fannie Mae.
The Fed maintained with confidence that the overall economy would remain immune to the housing slowdown, which it described as being largely confined to the subprime lending market. Those pronouncements had taken place despite a slowdown in GDP growth from 4.6 percent in first quarter 2006 to subpar growth rates of 2.4 percent, 1.1 percent, 2.1 percent, and 0.6 percent in the ensuing four quarters. In the second and third quarters of 2007, GDP growth rebounded to 3.8 percent and 4.9 percent respectively, primarily due to rising exports and falling imports, prompted by a falling dollar, weak U.S. demand, and robust foreign growth. But the net increase in GDP overlooked the prolonged dislocations in the housing market and the resulting deterioration in market liquidity.
The United Kingdom is the world's fourth largest economy with GDP valued at approximately US 2 trillion in 2004. With one of the most effective central banks in the world, the U.K. economy has benefited from many years of strong growth, low unemployment, expanding output, and resilient consumption. The strength of consumer consumption has in large part been due the country's strong housing market, which peaked in 2003. The United Kingdom has a service-oriented economy,
The second half of 2006 and 2007 will be a crucial period in Iceland. The rising inflation and overheated economy are likely to lead naturally to higher interest rates. These in turn will lead to other stresses on the economy. It will be essential that the investments of Icelandic companies and banks continue to perform well should some of these deals fail, the impact on investor confidence could be damaging to the currency, stock and bond markets. However the, strength of the financial system, the hedging and operating environment, has significant strengths. The evidence points to a weak housing market, high interest rates, a risky stock market and an economy that, despite the troubles, will limp through for better times in 2008.
Once you've begun to acquire good, basic residential real estate investments, don't let your need for greed, speed, or novelty take you off track. Don't cash out too quickly even if you'd like to have the money right now. Don't begin to take risks because someone says you can get rich faster with other kinds of investments. Don't change your Criteria simply because you're bored with looking at the same kinds of opportunities and deals again and again. Repetition is the mother of mastery and of skill. When you connect to the results you are achieving the activities you are repeating, you'll get excited about the activities. The power is in the repetition.
For residential properties, state laws often limit the amount of the security deposit, require interest to be paid on the deposit, and detail what are lawful deductions. Check with the local affiliate of the National Apartment Association for your state's security deposit laws. (Certain rental owners may be exempt from the rules.)
We've bought houses from sellers and done just a walkthrough inspection ourselves, and we've bought other properties and paid for a professional inspection. The real question is How much money are you putting in, either your money or borrowed money If a seller lies to you and fails to disclose that there are 6,000 in needed repairs, with many Purchase Option deals you could either get the seller to do the repairs or, if the seller refuses to do the repairs, you could choose to cancel the agreement, or you could choose to pay for the repairs yourself and get a credit on any money owed to the seller that you put into the repairs. In the agreements we use, we have clauses in them that give us these options. But because you can never count on the seller doing these repairs, if you ever put serious money into any deal, always hire a professional inspector. (If you want to learn more about property inspections, a good book is, The Home Buyer's Inspection Guide by Boroson and Austin from...
Foreigners can generally buy properties such as apartments and condominiums and rent them out without restriction. However, residents of some countries, including mainland China (unless they are permanent residents in another country), cannot buy property in Hong Kong. In 2006, because of stagnation, prices for small apartments dropped slightly, but luxury apartments held their value. The Hong Kong residential market is somewhat unusual in that returns on higher-end residential properties are consistently better than those on lower-end properties. Higher-end properties, however, are more volatile in pricing. Rents can be freely negotiated in the private sector, which comprises about half of the rental market.
The Earthquake Commission67 provides natural disaster insurance for residential property in New Zealand. The Minister of Finance has the power to direct the commission regarding its investment and reinsurance policies. Until recently, the commission's Natural Disaster Fund had been required to be invested entirely in nontradable New Zealand Government stock.
In case you did not know it, title insurance is not cheap And that is exactly why I do not just go out and get title insurance on every option that I buy. For example, here in Florida, an owner's title insurance policy on a residential property valued at 175,000 costs 950. So, for options that cost less than 10,000 on properties valued at less than 150,000 that do not belong to sue-happy owners, I forgo insuring the option. And to date, knock on wood, I have never had an owner renege on our option agreement by refusing to sell the property after the option was exercised.
Real estate agents prepare tenancy documentation, and standard residential tenancy forms are used for residential property. In the case of commercial leases, the preliminary Agreement to Lease is prepared by the agent. After signing the Agreement to Lease, the formal Deeds of Lease is prepared by the owner's solicitor.
Residential real estate, that is, single-family homes and condos, does, in some locations, exhibit some aspects of the typical investment bubble. Prices have risen dramatically in many coastal markets, despite modest growth in personal incomes and job growth. Many baby boomers appear to have decided that the stock market won't provide them with sufficient assets with which to retire, and have
The National Association of Residential Property Managers (NARPM) Best known as NARPM, the National Association of Residential Property Managers is one of the best and simplest ways to search and find a really great property management company. NARPM is a professional organization that promotes education, designations, and networking as a resource to empower its members with knowledge and skill. A NARPM member honors and subscribes to a code of ethics and standards of professionalism, while educating its members. licensing for property managers in this case go to www.narpm.net or www.irem.org to see whether there is a professional in the area. NARPM is the National Association of Residential Property Managers, and IREM is the Institute of Real Estate Management. Members of both organizations agree to conduct themselves according to a code of ethics and they are subject to the rules of the professional association. They both offer professional designations that require experience and...
1 Residential real estate sales is a steppingstone to commercial real estate sales. You have two different products and two different consumers. Focus on one or the other. You can compare this myth to a salesperson who believes she must know how to sell U.S.-made passenger cars before she can sell high-end European sports cars. But really, it just doesn't matter. A salesperson is a salesperson, period.
Australia is New Zealand's largest trading partner. This, coupled with the proximity of the countries and the fact that New Zealand is highly trade oriented, creates strong ties between the economies of the two countries. When the Australian economy does well and Australian corporations increase their importing activities, New Zealand is one of the first to benefit. In fact, since 1999, the Australian economy has performed extremely well with a booming housing market that created a need to increase imports of building products. As a result, this strength translated into a 10 percent increase in Australia's imports from New Zealand between 1999 and 2002. Figure 12.8 illustrates how these two currency pairs are near-perfect mirror images of each other. In fact, over the past five years, the two currency pairs have had a positive correlation of approximately 97 percent.
Once upon a time, everyone who bought a home would get a 30-year fixed rate loan. In such an environment, the housing market experienced boom and bust cycles that aligned with falling and rising interest rates. In the 1980s, when mortgage rates were high double digits, adjustable rate loans became more common and more popular. It prevented the housing market from drying up completely (although housing activity did plunge) when 30-year fixed mortgage rates averaged 18.45 percent in October 1981 and averaged 16.63 percent for the year as a whole. At the same time, adjustable loan rates were averaging roughly 13 percent, a significant improvement even if rates were still high. In the late 1980s and early 1990s, average homeowners were also becoming more aware of refinancing options. After all, those homeowners who had purchased homes in the early 1980s had faced such high mortgage rates that refinancing was a no-brainer even when closing costs were higher than they are today.
As an appraiser, you have several choices in whom to work for. Most appraisers turn their eye to residential property and are either self-employed or work for small appraisal companies. But it doesn't stop there. Every type of commercial property needs an appraiser to give the property a value. Commercial appraisers usually specialize in certain commercial properties because of the unique challenges in valuing a certain piece of property. For example, an appraiser may be asked to value an office building for purchase, or she may be asked to value a long-term lease on the same building. And each appraisal approach to reach the value is different.
Federal government agencies issue bonds to finance their activities. These agency bonds help support projects relevant to public policy, such as farming, small business, or loans to first-time home buyers. Agency bonds do not carry the full faith-and-credit guarantee of government-issued bonds, but they carry triple-A ratings due to the implicit guarantee that exists between the government and a government agency. This implicit guarantee allows the respective government agency to access low-cost capital to support objectives deemed to be consistent with the national interest. Federal agencies that issue bonds include
Recent research found conflicting evidence as to whether real estate truly helps hedge a portfolio against unanticipated inflation. One all-encompassing study in the Journal of Real Estate by Jack Rubens, Michael Bond, and James Webb looked at residential real estate, business real estate, and farmland. It examined whether these properties acted as hedges against actual inflation, expected inflation, and unexpected inflation. The study concluded that only residential real estate is a quantifiable hedge against actual inflation, only business real estate and Treasury bills are complete hedges against expected inflation, and only farmland and residential real estate were complete hedges against unexpected inflation. The study concluded that real estate is itself hedged against inflation, but that there are many better alternatives, such as commodity indices, to hedge a portfolio against inflation. A 1999 study by Kenneth Froot in The Handbook of Alternative Investment Strategies found...
Real Estate Investment Trusts, or REITs (pronounced reets ), are companies that own and collect rent from commercial and residential properties.10 Bundled into real-estate mutual funds, REITs do a decent job of combating inflation. The best choice is Vanguard REIT Index Fund other relatively low-cost choices include Cohen & Steers Realty Shares, Columbia Real Estate Equity Fund, and Fidelity Real Estate Investment Fund.11 While a REIT fund is unlikely to be a foolproof inflation-fighter, in the long run it should give you some defense against the erosion of purchasing power without hampering your overall returns.
As the world changes with time, so does the significance of the various economic releases. Between 2004 and 2007 alone, different economic indicators have appeared on our top indicators list. For example, in 2004 no one really gave a second thought to housing market numbers, because the real estate market was booming and everyone expected this boom to continue forever. By 2007, however, the housing market bubble had burst and its problems had spread throughout the U.S. and global economies. Not only were house prices falling and inventory rising, but more and more homeowners were pushed into defaulting on their mortgages. This made the health of the housing market critical to the outlook for the U.S. economy. Everyone realized that for the U.S. economy to recover, the housing market would need to stabilize. Therefore, traders began to react more to the monthly existing home sales numbers than to the balance of trade report.
Keeping your investments close to home Looking at residential properties Getting to know commercial real estate Studying undeveloped land M f you lack substantial experience investing in real estate, you should avoid more esoteric and complicated properties and strategies. In this chapter, we discuss the more accessible and easy-to-master income-producing property options. In particular, residential income property, which we discuss in the next section, can be an attractive real estate investment for many people. Residential housing is easier to understand, purchase, and manage than most other types of property, such as office, industrial, and retail property. If you're a homeowner, you already have experience locating, purchasing, and maintaining residential property.
Estate market has been able to come up with a profitable use for the property. And I attribute this to a general lack of vision, creativity, and foresight on the part of most so-called real estate professionals. The fact of the matter is that many of the people involved in real estate today are afflicted with a bad case of tunnel vision, which prevents them from seeing beyond the borders of their own local real estate market. And for whatever reason, they have not been able to apply the marketing concept of buy locally but sell nationally and globally to their real estate investment business. Granted, residential real estate may pretty much be a highly localized business, but that does not mean that the marketing of commercial and industrial real estate should be restricted to the local marketplace. And this is exactly why you must expand your real estate market horizons so that you are able to think outside your local real estate market. To illustrate my point, I recently advised an...
REITs are very diverse, from both a property type and an instrument perspective. The properties in which REITs invest range across all industries and types, including office buildings, shopping centers, residential properties, industrial facilities, health care, lodging, warehousing, and new development. Furthermore, the instruments through which REITs gain exposure to these property types vary and include equity interests, commercial mortgages, and residential mortgages. It can be difficult to generalize about the investment considerations for REITs, since they invest in a broad range of properties and real estate securities. However, the main generalization that can be made is that the substantial portion of total return from these entities is provided by current income. REITs are mandated to pass through to unit holders a majority of their operating income. As a pass-through entity, a REIT is allowed to convey its pretax income to its unit holders before the application of income...
Here's another example of a businessperson who was seeking investment money in a new business. Eddie was someone Lisa knew as a very active note buyer. He had been buying seller-financed mortgages at a discount as a business for many years. A few years ago, Eddie decided to expand his horizons and start teaching his business concept to others. He developed a business called The Note School, which was intended to provide education and mentoring to people who wanted to learn how to invest in seller-financed notes that were secured by residential real estate. Eddie connected with an infomercial guru, he developed his speaking and teaching skills, and he started going around the country speaking professionally about his area of expertise.
Il Residential property From a lender's point of view, residential property is your personal residence, which is more than likely a single-family home. A property that contains two to four family dwelling units duplexes, triplexes, or fourplexes is also treated as residential. Obtaining a loan for a commercial property is similar to obtaining a loan for a residential property. For example, with both types of loans you have to apply for the loan and show that you have the capability of repaying the loan, you must be creditworthy, and you must provide a down payment of some sort. But, that's basically where the similarities end.
A property manager is a professional who manages investment properties for others often he or she only manages property and handles rentals. Just because someone is a Realtor does not mean he or she has the expertise and knowledge to manage your property. Go to the National Association of Residential Property Managers (www.NARPM.org) or to the Institute of Real
In this paper we revisit the relationship between real estate returns and inflation in the context of a robust simulation that allows for serial and cross-sectional inter-temporal dependencies in asset return series' and related economic variables. We explicitly address the issue of meta-uncertainty through Monte-Carlo simulations. The results of these simulations suggest that, despite the evidence for historic structural shifts in the relationship between real estate and macroeconomic variables, commercial and residential property returns are predicted to remain significant inflation hedges. The relationship between real estate returns and inflation has long interested the academics and the practitioners alike. From a theoretical perspective, it is not immediately evident that real estate is a good inflation hedge. For example, the value of a building that is leased at a fixed rent to a tenant who does not pay maintenance, taxes and utility costs is adversely affected by inflation...
An asset whose cash flow values depend functionally on another asset is termed a derivative asset. A good example is a stock option. To describe such an option, suppose that I own 100 shares of stock in company A This asset, the 100 shares, is a basic asset. Now suppose that I have granted you the right (but not the obligation) to buy, at say 54 per share, all 100 of my shares in three months, This right is a call option on 100 shares of stock in company A This option is an asset it has value, and that value may change with time. It is, however, a derivative of the stock of company A because the value of the option depends on the price of the stock if the stock price goes up, the option value also goes up. Other derivative assets include futures contracts, other kinds of options, and various other financial contracts. One example seen by many home buyers is the adjustable-rate mortgage, which periodically adjusts
The first of these offers came on July 9, 1992, from the investment group MAXAIR, led by Maxxam Inc., a Houston-based natural resources company that had interests in forestry, mining, and various commercial and residential real estate operations. The founder and CEO of Maxxam was Charles Hurwitz, who had gained a reputation (and considerable fortune) in the 1980s as a corporate raider. Maxxam had reported net income for 1991 of 57.5 million on sales of 2.2 billion. Also included in the group were two investment banking firms, Kidder Peabody and Donaldson, Lufkin &c Jenrette. The group's initial offer called for an investment of 350 million, to consist of 325 million in secured notes and 25 million of a new class of common stock having three votes per share (class B stock). The notes would be callable, amortizing, and mature in seven years. In addition, the group was to receive warrants to purchase 130 million shares of normal class A common stock. With the remaining shares and...
The Federal Housing Administration (FHA) offers the most well-known low-down-payment home finance plans. Yet, somewhat perversely, many home-buyers believe that FHA limits its loans to people who earn low or moderate incomes. For instance, one of Florida's largest newspapers continues to describe FHA as a program for low-income homebuy-ers. Not true. No matter how much you earn, FHA may provide the key to your home financing.
This is the place to live once you make it It's not the kind of real estate to make money with. It's most certainly prime residential property and will undoubtedly increase in value over time. If inflation breaks loose, obviously, this type of real estate will soar in value, which is exactly what happened years ago in Southern California. Many who bought homes to live in and raise their families watched the values increase 20 times or more during the life of their mortgage.
This is the location most investors choose when they decide to acquire residential properties the giant subdivisions and sprawling tracts of houses, most generally located a few miles from the city core, tied together by express lanes and freeways. Most subdivisions are occupied by middle-class America.
Capital gains are taxed in full and on a separate basis regardless of whether the individual had a net income or a net operating loss. If the seller chooses to pay income tax according to the applicable rate, the transfer tax can be offset as a direct credit against the income tax levied on a capital gain arising from the sale. If the seller chooses to pay income tax at a flat 10 percent rate, no further taxes on capital gains are levied, but the seller cannot apply that 10 percent rate to the sums already paid for the property transfer tax and any expenses related to the transaction. Sale of a new residential property is exempt from this tax if the buyer uses it as a personal residency.
The most popular real estate venue for investment is residential property. Among desirable areas are Auckland, where Barbara is staying the Bay of Islands region and the holiday resort areas in the Central Otago and Lakes districts on South Island, around the city of Queenstown. Queenstown ranks as one of the top locations for both local and international property investment, due to its fame as a holiday destination for tourists worldwide, so Barbara decides to focus her real estate savvy on Auckland, where she may find better deals and less competition for them.
A lifelong educator, he had a modest lifestyle and used his savings to invest carefully in rural land and residential real estate. However, after a while he became impatient for bigger returns on his investment of time and effort, and as a result he made his first speculative investment. It was also his last. He was invited to participate in an opportunity that involved converting an abandoned drivein movie theater into a parking lot. The outcome hinged on the city adopting the site for its park-and-ride program, but soon after the pur
Over the past 30 years the UK has gone through a number of highs and lows in the housing market. One could easily apply the VSA theory of supply and demand to this market - in fact, any market. Elliot Wave is based on critical cycles and these cycles can be applied generally to seasonality of crops or trends and fads in many consumer markets. The Fibonacci Sequences, and in particular what the Greeks called The Golden Mean , defines the proportions of the Parthenon, the shape of playing cards and credit cards, and the proportions of Westminster Abbey. The Golden Mean appears throughout nature, in flower patterns, the leaves of an artichoke, and the leaf stubs on a palm. The length of each successive bone in our finger, from tip to hand, also bears this ratio. I have purposely given more than one example of Fibonacci and the Golden Mean to suggest that even the most obtuse mathematical theorem can be applied to aspects of daily life, provided the person applying has learned the...
The much-anticipated end of the Federal Reserve's two-year campaign took place in summer 2006, prompting currency markets to begin paring their dollar longs. Once it concluded its 17 consecutive rate hikes, the Fed took a wait-and-see approach to gauge the upside risks of inflation and the downside risks from the slowing housing market. One year after peaking out, the U.S. housing market was signaling increasingly consistent signs of weakness, from falling home prices to sluggish construction spending and falling housing starts and permits. By the second quarter of 2006, the monthly price growth of U.S. existing and new home sales had reached double-digit levels on year-to-year basis. Although the Federal Reserve persisted in signaling its preoccupation with rising inflation, markets were beginning to perceive the Fed's concerns as largely tactical rhetoric aimed at supporting the U.S. dollar and bond yields without following through with an actual rate hike.
Existing home sales - Number of previously constructed homes with a closed sale during the month. Existing homes (also known as home resales) are a large share of the market than new homes and indicate housing market trends. This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. In a more specific sense, trends in the existing home sales date carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. Housing starts - Housing starts measure the number of residential units on which construction is begun each month. Home builders don't...
The useful life of the buildings is specified in the tax code. As of this writing, you depreciate residential property over 27.5 years and nonresidential over 39 years. Also in the current law is the half-month convention, which says that you can take only one-half month of depreciation in the month that you place a property into service, and one-half in the month you dispose of it.