Top 10

Ugh... Still in the top 10.

Good news is we aren't #1.

1. Detroit 4.9%
2. Stockton, Cal 4.86%
3. Vegas 4.2%
4. Riverside 3.8%
5. Sacramento 3.2%

9. Denver 2.6%

These of course are 2007 foreclosure statistice provided courtesy of Realty Trac. The US Average is a 1% foreclosure rate.

There is no doubt its a buyers market. Plan on living in to your place for 5 years or keeping it as a rental property.

Happy Dance!

On the 15th, Tanna & I sold our first investment property. We bought at the right price, didn't overdue the rehab process and successfully sold the property for a property in a very difficult real estate market. We put $8,000 into the property and made almost $10,000 in profits. Tell me where else anyone can see that kind of return on their money?

It was a peice of cake... Or not.

I will say that I just passed real estate investing 101. However, it was NOT easy. It was one of the most challenging and rewarding tasks that I've ever taken on.

I feel like a giant gorilla just climbed down off of my shoulders...

Some advice for those of you considering real estate investments:

• It won't sell tomorrow. Plan on hanging onto the property for 5 years. That being said, do enough updating so the property can be rented out. Wait until the market starts to take off before 'flipping' the property & putting it on the market.
• How long is your snorkel? Know your worst case scenario. If the property goes vacant or unexpected expenses pop up what is going to happen? Will you find yourself calling relatives and friends to stay out of foreclosure? Don't get in over your head!
• Get past appreciation. You make money buying at the right price and cash flowing. If you are banking on appreciation, you're going to need to hold onto the property for a long, long time.
• Get the right loan product. The right loan will help you meet your goals and maximize the return on your investment. There is no 'one size fits all' loan. Get the right loan for your needs.

I'm not an investment expert (yet). I believe that I am on my way. Wishing you all phenomenal returns on your real estate investments in 2008.

Fed Rate Cut = Higher Mortgage Rates?

Yes! (Well this time anyway.) Why? Mortgage rates follow the bond market, not short term interest rates. Mortgage rates are also influenced by inflation concerns.

http://www.bankrate.com/nltrack/news/mtga/Dec1307_mortgage_analysisa1.asp?ec_id=brmint_ns_mortgage_20071213

So do rate cuts affect mortgage rates? Sometimes....

So Proud....

I had the chance to catch up with one of my friends at a wedding this past weekend. Soon, we were discussing their first home purchase. They had been shopping and shopping and shopping...

The found the one and made an offer.

The seller refused to budge.

The moment of truth.... Should they:

1) Take the deal. Afterall, they love the house!

2) Walk away.


WALK AWAY! The great news is.... they did! There are too many homes on the market to let the seller control the transaction. It's a buyers' market and buyers who allow sellers to control the transaction may find themselves singing the upside down blues!

Merry Christmas Adjustable Rate Mortgage Holders!

United States Treasury Secretary Henry Paulson is extremely optimistic that many of the big players in the mortgage industry are going to go to work for thousands of homeowners.

A deal is in the works to extend the lower introductory rate on fixed rate mortgages for 1 - 7 years. My bet is that when it is all said and done, we'll be looking at 3 years.

This is phenomenal news! If it goes through, it will be the government's greatest achievement in alleviating the mortgage meltdown!

http://hosted.ap.org/dynamic/stories/M/MORTGAGE_CRISIS?SITE=CODER&SECTION=BUSINESS&TEMPLATE=DEFAULT#

Sunny Skies Ahead?

Probably not. However, here is a little hope that Colorado will be one of the first states to recover from the mortgage crisis.

http://www.rockymountainnews.com/news/2007/dec/01/states-foreclosure-rate-drops-to-no-7-in-nation/

Problems...

The real estate industry is going nuts. We all see the news, read the horror stories and witness giants such as CITI and Countrywide scramble while their stock prices tumble and tumble and tumble...
Rust Belt city mayors recently met to discuss the mortgage mess. With all of the media hype, government officials are calling for changes. They are calling for help. The question is... will help arrive?
I hope not. Here is why. The mortgage mess is due to a few factors.

1. Lack of Consumer Education. Borrowers were told two things:
-Your credit will improve. This is true IF you embrace responsible spending.
-Your home will appreciate. Long term, this is always true. Short term, there are no guarantees. This is especially true for borrowers who didn't treat their home as an investment.

2. Greed.
-Wall Street was getting rich. Can you imagine 1% of hundreds of billions of dollars? -Brokers. While Wall Street was getting fatter than fat, individual mortgage brokers seized the opportunity to gouge clients on their loans.
-While 1% of hundreds of billions is hard to imagine, a $10,000 profit on a single closing hits a little closer to home.

3. Government -A president who wants to increase home ownership (Great principle, but the means to this end has proven errant).
-Greenspan. The jury is still out, BUT interest rate cuts made unaffordable homes, very affordable (for the time being).

Looking for solutions? Check out the next post.

MSNBC Agrees

Here is a recent article concerning new build homes. I've already written a blog on the topic. For more info, check out this link http://www.msnbc.msn.com/id/21151323/ and scroll down my blog to find 'Don't Buy New Homes.'

Can you imagine buying a home with an adjustable rate mortgage at the peak of the boom with hopes of double digit appreciation only to find yourself $25 - $50,000 upside down only two years later?

These people are left with two difficult choices:
1 - Eat the adjusting payments
2 - Lose the home to foreclosure

Horrible. Horrible. Horrible....

Housing Recovery! Housing Recovery?

“Fresh evidence suggests the Denver-area housing market may be in the early stages of recovery, even as the national housing market faces an even bigger slump.”

“Housing is a bargain in the Denver area compared with many other places,” states Mike Foster, director of land acquisitions for Century Communities.

“Denver is a low-risk market. It will be easier for companies to relocate to our market than to relocate to other markets,” continues Foster.

“Is it all roses in the Denver marketplace? No. But it is not as bad as all of the doom-and-gloom talk either,” affirms real estate agent Gary Bauer.

I’m not ready to stand here and guarantee that the Denver market will recover in the next 6 months. I’m not ready to promise double digit appreciation. There are too many houses on the market and the real estate finance industry is still finding itself. Basically, there are too many unknowns. However, the future doesn’t appear to be all doom and gloom. There is hope!

“Not long ago, Denver was the most expensive housing market ‘anywhere in the U.S. without a beach.’ But because the Denver-area housing market has been flat for so many years, it will recover faster than other areas that, until recently, saw a huge run-up in prices.”

-“Home Prices Hint at Turn.” Rocky Mountain News Business 2. 9/27/07

Winners & Losers...

In all markets, there are always winners and losers. It doesn’t matter if you are vested in stocks, commodities, precious metals or real estate.
**Note: If you own a home, you are a real estate investor!
Right now, the real estate industry is taking a beating due to a credit crunch (% of people with access to financing) and huge inventories (foreclosures + new developments).
Losers: Those who have adjustable rate mortgages in declining neighborhoods.
Why? They can’t refinance! This is horrible. I’ve encountered numerous files where the borrower has done everything right. They pay their bills and take care of the property. Unfortunately, their neighbors lack the same commitment and/or resources. Their homes have been foreclosed upon and driven down prices. Ugh…
Losers: Those who wish to sell their home.
Why? Their house may not be worth what they paid for it, they may have lost out on profits that existed a couple of years ago, it will likely take much longer to sell and there are fewer eligible buyers! Ugh…
Winners: Those who are preparing to buy their first home!
Why? Over the long term, homes will appreciate. Treat your home like an investment! Use a competent agent who will provide good comparables!
Winners: Long term real estate investors!
Why? Fewer eligible buyers + thousands with foreclosure damaged credit + huge home inventory = Higher rents and more cash flow potential properties! Once again, you must buy right!
Losers, don’t lose hope (or sleep). Maybe you can rent out your current residence or even do a lease to own! Maybe, you’ll just have to sit tight for a couple of years while the market recovers. There is hope & a light at the end of the tunnel!

Real Estate's Fault Line

There is plenty of blame to pass around concerning who is at fault for the real estate bust that is making headlines almost every day in major publications, nightly news and coffee shop chit chat.

I’m going to boldly be a complete pansy and just spread the blame around to everyone.
· Consumers: Know the terms of your loan! Can you afford the monthly payments? Is your loan going to adjust? If so, when? What is the margin? What is the cap? Know your worst case scenario!
· Mortgage Brokers: Keep your buyer’s interests and welfare the number one priority! Very simple. Ask some questions. Educate buyers on loan products. Be a resource!
· Wall Street: Don’t demand loans that aren’t proven performers!!

Whoa! How on earth does Wall Street fit into the mix? Here is how the loan process works.
1. Loan officers take loan applications and send them in to mortgage companies/banks which underwrite (review) the file & fund the loan. At this point, the consumer has closed on their home and the loan process is completed, right?
2. Not even close! Most banks are not portfolio lenders. In other words, most banks bundle millions/billions of dollars in loans sell them as mortgage-backed securities.
3. At this time, the new owner of the mortgage can use the securities as collateral to issue bonds for financing other deals! Homeowners pay the interest that covers interest.
4. These securities are rated by risk groups (tranches) for investors. Riskier loans pay more.
Now you can really see where the demand for risky loans came from. A LOT of people made a ton of money. Mortgage brokers, banks and Wall Street Investors.

The problem occurred when homeowners were unable to make payments for various reasons. Suddenly, the money needed to pay bond interest is not there! At this point Wall Street starts slamming doors closed. Mortgage companies have no one to sell their loans to and lack the capital to hold onto billions upon billions of dollars in mortgages. Doors close! Companies disappear over night.

People who were eligible for loans 9 months ago can’t even come close to qualifying today. What does this mean for Denver??

We have a huge inventory of homes on the market right now. We have fewer eligible buyers. The worst is not over in the housing market! We’re looking at a couple more years of slow real estate.

Time Magazine recently did a nice article on Denver real estate. Check it out.
http://www.time.com/time/magazine/article/0,9171,1653635,00.html

Hate Your Neighbor?

I can think of a couple of good reasons to really dislike your neighbor.


1 - Sold on the fact that the development would take off, you purchased in the first phase. The development tanked and your neighbor bought the same house 8 months later for $50,000 less. That hurts & leads to an awkward conversation at the next barbeque.

"I love your house! Did you guys get in when the builder was slashing prices and giving away upgrades as incentives?"
"No. We paid $50,000 more and didn't get jack squat for upgrades. I'm going to go grab a drink (perhaps a shot or five) right now."

The good news is, you really don't have to harbor the anger towards your immediate neighbor for long. Why?

2 - From your porch, you can see a new development being built. That's great right? The area is taking off!! Long term, that may be true. If you want to sell your house in the next five years a different picture is painted. You will be competing against new builds! In other words, you were $50,000 upside down to start with and now you might be $70,000 upside down because in order to sell, you'll have to beat the prices of new homes!!

Bottom line, new home sales are up, but prices are not. The market remains in turmoil. More houses + Fewer buyers = Struggling housing market

http://articles.moneycentral.msn.com/Investing/Dispatch/070824markets.aspx

Panic in the Streets!

Subprime mortgages are dead.

Foreclosures are at all time highs.

Home sales continue to fall.

What on earth am I doing in real estate?

I believe that a great value is still a great value.
-Are they easy to find? No.
-Are they easy money? Absolutely not.
-Do they exist? Yes!

The real estate market is cyclical. It will turn around. When? I don't know. I do think Denver will start to pick up within the next 2 years. For renters or those who want to own a rental, now is a great time to get involved in residential real estate.