Jerry & Rachel Hsieh Real Estate Team - Keller Williams Realty in Los Angeles
IF YOU WANT THE LATEST INFORMATION ON THE LOCAL LOS ANGELES REAL ESTATE MARKET, FOLLOW THIS BLOG! FEEL FREE TO SEND OUR TEAM A REQUEST FOR ANY PROPERTY ON THE MARKET YOU'D LIKE TO VIEW BY CALLING US AT 310.623.1359. Our Cell: 424.242.8856 Email: jerryandrachel@newhomesLA.com DRE #: 01701809
Thursday, January 29, 2009
Buying from a Bank vs. Buying from a Traditional Seller
In the past year, almost 75% of the homes and properties I've previewed on behalf of my clients have been bank-owned foreclosures. Of course, this is due to a major shift in the inventory given the current economic and housing crisis, but it probably also has a lot to do with the fact that my clients only want to see these foreclosures because they are priced so low. Because of this, many of my clients have also asked me for advice so they can understand what the "real, practical" differences are between buying from a regular seller as opposed to the bank. Here are my thoughts on this:
Before Offer
This is the period before the offer, when you're doing research or considering properties to write on. The main differences between foreclosure properties and regular properties during this time are that foreclosure properties are usually priced much lower than homes priced by sellers. This makes sense. Private sellers generally have the mentality of "let's get that one special buyer who will pay a premium for our property." Banks run more like an emotionless machine: "Let's price it at our bottom line, get multiple offers, and liquidate our inventory fast."
Forclosures on average generally are priced lower. However, it is important to also realize that, as with any capitalistic system, incentives (like, in this case, low pricing) creates stronger demand. With well priced foreclosures, you can almost always expect a bidding war, and if you want the property, you will probably have to make a best and final offer that needs to be over list price.
Foreclosure properties also tend to have more deferred maintenance. People who are maintaining and remodeling their homes generally don't stop paying their mortgages. It's usually people who can't afford to do any repairs that are. Therefore, homes that are owned by the bank are generally in worse shape, vacant, and dirty. As a buyer, you must have the imagination to vision past this.
Finally, foreclosure properties are usually always on lockbox.
During Offer Negotiation
This is the period from when you decide to put an offer on the property until you have an accepted offer. This period can be quite frustrating for buyers who are not familiar with how banks operate.
When you are buying a home from a private seller, they will generally do their best to work with you to create a win-win during the negotiations. They understand it is in their best interest to keep you, the buyer, in a good mood during negotations. Banks are much more impersonal.
Specifically, private sellers will usually counter with a clean written counter that addresses specifics. They will do so in a timely manner and you will likely get the sense that they are working in the spirit of compromise to make a deal. Banks are less concerned with keeping you in the deal as they are recovering their loss. They can counter however they want, and often times as a buyer, you will find the process much colder and almost as if they don't want to work with you. For instance, the bank may respond to your offer the following ways:
1) A Straight verbal rejection (If you submit a lowball offer to a bank, expect a straight verbal rejection)
2) A verbal counter
3) A counter for your best and final - no mention of them coming down on price
4) Bank counters to you at their full list price or almost full price - forcing you to either come up or walk away.
More often then not, the counter will be exclusively about price. And more often then not, they will just ask for your best and final.
The reason they only counter on price is because banks also have what we in the real estate industry know as a "boiler plate" addendum that you will need to sign as part of the acceptance that lays out THEIR terms. This addendum lays out all the terms of the contract for you, and supercedes any offer you may have put in previously. You can not adjust any of them, and they generally favor the bank heavily.
For instance, if you found a great property and offered $400,000 with a 17 day inspection contingency period, they could counter you back best and final. Say the list price was $450,000, and you told your agents you'll come up to $450,000: The bank would say, "OK. We have a deal. We'll send you the addendum with the price of $450,000. Just sign and we'll be in escrow." This means you have a deal, but in order to have the deal in writing, you must sign the banks addendum, which likely says inspection contingency shall be 7 days.
With the boilerplate Addendum, be aware of the following common changes:
1) Shortening of contingency periods.
2) Changing contingency removal from active to passive.
3) Per Diem penalty if you are not able to close on time
4) Penalty if you change your financing down payment amounts (even if you are able to close).
5) They will not pay for Termite work or retrofitting work.
The boilerplate addendum is non-negotiable. If you try to cross anything out, the bank will pass on your offer. As California real estate agents, we are expert in C.A.R Forms primarily. Legal addendums drafted by banks are outside the realtors scope (with the exception of Realtors with law degrees). Therefore, with bank owned properties, for your protection, it is also advisable to have a lawyer who specializes in real estate law review the bank addendum prior to signing. Unfortunately, realtors are not qualified to advise on these documents.
During Escrow and Beyond
In a traditional sale with a tradional seller, escrow will generally be opened immediately with a standard escrow company. With a foreclosure, it may 7-10 days before escrow is opened. Furthermore, banks tend to opt for low-rent, high volume escrow companies. How does this effect you:
1) You will have trouble getting someone on the phone when you need assistance on loan docs, ordering homeowner's insurance, getting necessary disclosures like preliminary title report or a copy of the Natural Hazards disclosure.
2) They will not keep track of timeframes on your escrow to make sure things are happening according to schedule. It will be up to you and your agent to keep track of them.
3) You loan is dependent on a number of things happening on a timely manner from escrow's end. If this does not happen, you can expect the bank to charge you a hefty per diem (around $125 a day) upon closing.
Once you have an accepted offer, a traditional seller will fill out a number of disclosures that will reveal as much as that seller knows about the property. Banks are excused from having to fill these out because they have a limited knowledge of the property.
During escrow, most buyers will do inspections on the property. If there are hidden defects with the property (i.e. the sewerline is cracked, Chimney doesn't work), most buyers and sellers will work together to find a reasonable credit to address the issue.
With bank-sold foreclosures (and per the boilerplate addendum), you are buying the property "As-is". Keep in mind, this is important as foreclosure homes are usually in much worse shape than homes sold by traditional sellers.
All this said, it is possible to negotiate for repair credits from the bank if (a) you have a strong offer that they probably wont get again, and (b) you have a willingness to walk away. I cannot stress "(b)" enough. With foreclosures, the bank generally will be unwilling to give any type of credit, until they see you cancelling escrow. You must be willing to walk away if the credit for repairs is that important to you. Otherwise, just accept that you are buying the property as is.
One common misconception, is that bank-owned properties take longer to sell or have delayed escrows. I would say it is actually the contrary: Bank-owned properties are pushing for fast closes, and will penalize you if you cannot close within the standard 30-40 day time window.
The properties that do take a long time and have delays are "short sales": A situation that happens when a traditional seller is trying to sell their home, but requires the involvement of the bank because the home is worth less than the amount of debt that is owed on it.
Please feel free to comment or email me if you have further questions. Thanks!
-Jerry
Before Offer
This is the period before the offer, when you're doing research or considering properties to write on. The main differences between foreclosure properties and regular properties during this time are that foreclosure properties are usually priced much lower than homes priced by sellers. This makes sense. Private sellers generally have the mentality of "let's get that one special buyer who will pay a premium for our property." Banks run more like an emotionless machine: "Let's price it at our bottom line, get multiple offers, and liquidate our inventory fast."
Forclosures on average generally are priced lower. However, it is important to also realize that, as with any capitalistic system, incentives (like, in this case, low pricing) creates stronger demand. With well priced foreclosures, you can almost always expect a bidding war, and if you want the property, you will probably have to make a best and final offer that needs to be over list price.
Foreclosure properties also tend to have more deferred maintenance. People who are maintaining and remodeling their homes generally don't stop paying their mortgages. It's usually people who can't afford to do any repairs that are. Therefore, homes that are owned by the bank are generally in worse shape, vacant, and dirty. As a buyer, you must have the imagination to vision past this.
Finally, foreclosure properties are usually always on lockbox.
During Offer Negotiation
This is the period from when you decide to put an offer on the property until you have an accepted offer. This period can be quite frustrating for buyers who are not familiar with how banks operate.
When you are buying a home from a private seller, they will generally do their best to work with you to create a win-win during the negotiations. They understand it is in their best interest to keep you, the buyer, in a good mood during negotations. Banks are much more impersonal.
Specifically, private sellers will usually counter with a clean written counter that addresses specifics. They will do so in a timely manner and you will likely get the sense that they are working in the spirit of compromise to make a deal. Banks are less concerned with keeping you in the deal as they are recovering their loss. They can counter however they want, and often times as a buyer, you will find the process much colder and almost as if they don't want to work with you. For instance, the bank may respond to your offer the following ways:
1) A Straight verbal rejection (If you submit a lowball offer to a bank, expect a straight verbal rejection)
2) A verbal counter
3) A counter for your best and final - no mention of them coming down on price
4) Bank counters to you at their full list price or almost full price - forcing you to either come up or walk away.
More often then not, the counter will be exclusively about price. And more often then not, they will just ask for your best and final.
The reason they only counter on price is because banks also have what we in the real estate industry know as a "boiler plate" addendum that you will need to sign as part of the acceptance that lays out THEIR terms. This addendum lays out all the terms of the contract for you, and supercedes any offer you may have put in previously. You can not adjust any of them, and they generally favor the bank heavily.
For instance, if you found a great property and offered $400,000 with a 17 day inspection contingency period, they could counter you back best and final. Say the list price was $450,000, and you told your agents you'll come up to $450,000: The bank would say, "OK. We have a deal. We'll send you the addendum with the price of $450,000. Just sign and we'll be in escrow." This means you have a deal, but in order to have the deal in writing, you must sign the banks addendum, which likely says inspection contingency shall be 7 days.
With the boilerplate Addendum, be aware of the following common changes:
1) Shortening of contingency periods.
2) Changing contingency removal from active to passive.
3) Per Diem penalty if you are not able to close on time
4) Penalty if you change your financing down payment amounts (even if you are able to close).
5) They will not pay for Termite work or retrofitting work.
The boilerplate addendum is non-negotiable. If you try to cross anything out, the bank will pass on your offer. As California real estate agents, we are expert in C.A.R Forms primarily. Legal addendums drafted by banks are outside the realtors scope (with the exception of Realtors with law degrees). Therefore, with bank owned properties, for your protection, it is also advisable to have a lawyer who specializes in real estate law review the bank addendum prior to signing. Unfortunately, realtors are not qualified to advise on these documents.
During Escrow and Beyond
In a traditional sale with a tradional seller, escrow will generally be opened immediately with a standard escrow company. With a foreclosure, it may 7-10 days before escrow is opened. Furthermore, banks tend to opt for low-rent, high volume escrow companies. How does this effect you:
1) You will have trouble getting someone on the phone when you need assistance on loan docs, ordering homeowner's insurance, getting necessary disclosures like preliminary title report or a copy of the Natural Hazards disclosure.
2) They will not keep track of timeframes on your escrow to make sure things are happening according to schedule. It will be up to you and your agent to keep track of them.
3) You loan is dependent on a number of things happening on a timely manner from escrow's end. If this does not happen, you can expect the bank to charge you a hefty per diem (around $125 a day) upon closing.
Once you have an accepted offer, a traditional seller will fill out a number of disclosures that will reveal as much as that seller knows about the property. Banks are excused from having to fill these out because they have a limited knowledge of the property.
During escrow, most buyers will do inspections on the property. If there are hidden defects with the property (i.e. the sewerline is cracked, Chimney doesn't work), most buyers and sellers will work together to find a reasonable credit to address the issue.
With bank-sold foreclosures (and per the boilerplate addendum), you are buying the property "As-is". Keep in mind, this is important as foreclosure homes are usually in much worse shape than homes sold by traditional sellers.
All this said, it is possible to negotiate for repair credits from the bank if (a) you have a strong offer that they probably wont get again, and (b) you have a willingness to walk away. I cannot stress "(b)" enough. With foreclosures, the bank generally will be unwilling to give any type of credit, until they see you cancelling escrow. You must be willing to walk away if the credit for repairs is that important to you. Otherwise, just accept that you are buying the property as is.
One common misconception, is that bank-owned properties take longer to sell or have delayed escrows. I would say it is actually the contrary: Bank-owned properties are pushing for fast closes, and will penalize you if you cannot close within the standard 30-40 day time window.
The properties that do take a long time and have delays are "short sales": A situation that happens when a traditional seller is trying to sell their home, but requires the involvement of the bank because the home is worth less than the amount of debt that is owed on it.
Please feel free to comment or email me if you have further questions. Thanks!
-Jerry
Tuesday, January 20, 2009
Frequently Asked Questions for First Time Buyers
Hi Folks! I just put these packets of FAQs in real estate together this weekend. If you're a first time buyer, or haven't been actively involved in real estate for awhile, I think this information is great and TREMENDOUSLY informative.
For my clients who are actively in the market now, this is a great resource and a MUST READ! Click on the links below:
First Time Buyer FAQ's
Highlights
"Five Common First Time Home Buyer Mistakes"
"Ten Questions to Ask Your Home Inspector"
"Five Property Tax Questions You Need to Ask"
Mortgage and Escrow FAQ's
Highlights
"Ten Questions to Ask Your Lender"
"Five Things to Understand About Title Insurance"
"Common Closing Costs for Buyer"
10 FAQ's in Real Estate
Highlights
"Tips on Buying in a Tight Market"
"Questions to Ask when Choosing a Realtor"
"Ten Steps to Prepare for Homeownership"
Stay tuned next week. I am going to talk about foreclosures and will explain the differences to you, the buyer, between buying a home from a bank vs. a private party(normal seller).
-Jerry
For my clients who are actively in the market now, this is a great resource and a MUST READ! Click on the links below:
First Time Buyer FAQ's
Highlights
"Five Common First Time Home Buyer Mistakes"
"Ten Questions to Ask Your Home Inspector"
"Five Property Tax Questions You Need to Ask"
Mortgage and Escrow FAQ's
Highlights
"Ten Questions to Ask Your Lender"
"Five Things to Understand About Title Insurance"
"Common Closing Costs for Buyer"
10 FAQ's in Real Estate
Highlights
"Tips on Buying in a Tight Market"
"Questions to Ask when Choosing a Realtor"
"Ten Steps to Prepare for Homeownership"
Stay tuned next week. I am going to talk about foreclosures and will explain the differences to you, the buyer, between buying a home from a bank vs. a private party(normal seller).
-Jerry
Monday, January 12, 2009
"Mortgage Rate Relief Might not Last Long" from REUTERS, published Jan 8, 2009
" 'The downward trend we have seen in mortgage rates will not last beyond the first half of this year,' said Celia Chen, senior director of housing economics at Moody's Economy.com in West Chester, Pennsylvania..."
Hello again folks! Passing along an article regarding mortgage rates for 2009. This was just released last week on Reuters.com and it echoes the sentiments of most of the mortgage brokers I've been in touch with in the past couple of months. The general consensus I'm hearing is that there is a possiblity (keyword: POSSIBILITY) mortgage rates could get as low as 4.5%, but once that bottom hits, rates will start creeping up sooner than most buyers who are currently stradling the fence will realize.
-Jerry
Mortgage Rate Relief Might Not Last Long
Thu Jan 8, 2009 4:50pm EST
By Julie Haviv - Analysis
Direct Link
NEW YORK (Reuters) - Massive efforts by the Federal Reserve to bring down mortgage rates have so far been a success, but homeowners had better act fast because analysts say record low rates could be gone as soon as this summer.
Thirty-year mortgage rates dropped to a low of 5.01 percent this week -- their lowest since 1971 -- after the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of securities backed by Fannie Mae (FNM.P), Freddie Mac (FRE.P) and Ginnie Mae. They could touch as low as 4.50 percent, but the cheap loans will not last long, mortgage experts warned.
"The downward trend we have seen in mortgage rates will not last beyond the first half of this year," said Celia Chen, senior director of housing economics at Moody's Economy.com in West Chester, Pennsylvania.
"By then, the Federal Reserve's program will have run its course and other issues will move to the forefront that could push mortgage rates higher," she said.
The Fed has also embarked on a program to buy up to $100 billion in unsecured debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks in a move also aimed at lowering interest rates on mortgages.The prospect of affordable home financing has provided a glimmer of hope for the U.S. economy with the housing market in the worst downturn since the Great Depression. But if mortgage rates rise, they will further paralyze a housing market already beset by plunging home prices, an unwieldy supply of homes for sale, tighter lending standards by risk-shy banks and surging foreclosures.
Even if the Fed extends its mortgage bond buying program past the summer, its other efforts to flood financial markets with cash will work against low rates. They include the inflationary impact of both the Federal Reserve's near-zero interest rate policy and the massive looming fiscal stimulus from the government which must be paid for by more government debt, pushing up interest rates. A 30-year fixed-rate mortgage at 4.50 percent is a level apparently targeted by policy makers.
Moody's Economy.com forecasts interest rates hitting 4.50 percent by the middle of 2009 after dropping to a low of 4.37 percent in the second quarter. But, by the third quarter and fourth quarter interest rates will be climbing to 4.57 percent and 5.18 percent, respectively. By the first quarter of 2010, rates should be at 5.87 percent, Chen said.
"Low mortgage rates are important, but there is no evidence that lenders are lending and that is crucial," she said.
Treasury yields, which move inversely to price, are linked to mortgage rates. The Treasury is seeking to fund an estimated deficit of $1 trillion or more over the coming year.
TOO LOFTY A GOAL
Cameron Findlay, chief economist at online loan broker LendingTree.com in Charlotte, North Carolina, said mortgage rates at 4.50 percent remained possible, but not probable. "For now the Fed has implemented change to entice rates to decline and are in a holding pattern to see the impact," he said.
"Up until a few weeks ago, people thought 4.50 percent was a realistic target for rates within 60-90 days, but that idea has dissolved," he said.
What has changed since November is the Fed's decision to ax interest rates to almost zero to help revive the economy, leaving the central bank with fewer options to cut rates. Findlay said mortgage rates should stay in a range between 5.00 percent and 5.50 percent for the next eight weeks or so barring any additional Federal Reserve action. Expectations of a 30-year fixed-rate mortgage at 4.50 percent are too ambitious, said Greg McBride, senior financial analyst at Bankrate, Inc, in North Palm Beach, Florida.
"Inflation worries may begin to spook investors and that could send Treasury yields higher, which would cause a corresponding move higher in mortgage rates," he said.
Hello again folks! Passing along an article regarding mortgage rates for 2009. This was just released last week on Reuters.com and it echoes the sentiments of most of the mortgage brokers I've been in touch with in the past couple of months. The general consensus I'm hearing is that there is a possiblity (keyword: POSSIBILITY) mortgage rates could get as low as 4.5%, but once that bottom hits, rates will start creeping up sooner than most buyers who are currently stradling the fence will realize.
-Jerry
Mortgage Rate Relief Might Not Last Long
Thu Jan 8, 2009 4:50pm EST
By Julie Haviv - Analysis
Direct Link
NEW YORK (Reuters) - Massive efforts by the Federal Reserve to bring down mortgage rates have so far been a success, but homeowners had better act fast because analysts say record low rates could be gone as soon as this summer.
Thirty-year mortgage rates dropped to a low of 5.01 percent this week -- their lowest since 1971 -- after the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of securities backed by Fannie Mae (FNM.P), Freddie Mac (FRE.P) and Ginnie Mae. They could touch as low as 4.50 percent, but the cheap loans will not last long, mortgage experts warned.
"The downward trend we have seen in mortgage rates will not last beyond the first half of this year," said Celia Chen, senior director of housing economics at Moody's Economy.com in West Chester, Pennsylvania.
"By then, the Federal Reserve's program will have run its course and other issues will move to the forefront that could push mortgage rates higher," she said.
The Fed has also embarked on a program to buy up to $100 billion in unsecured debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks in a move also aimed at lowering interest rates on mortgages.The prospect of affordable home financing has provided a glimmer of hope for the U.S. economy with the housing market in the worst downturn since the Great Depression. But if mortgage rates rise, they will further paralyze a housing market already beset by plunging home prices, an unwieldy supply of homes for sale, tighter lending standards by risk-shy banks and surging foreclosures.
Even if the Fed extends its mortgage bond buying program past the summer, its other efforts to flood financial markets with cash will work against low rates. They include the inflationary impact of both the Federal Reserve's near-zero interest rate policy and the massive looming fiscal stimulus from the government which must be paid for by more government debt, pushing up interest rates. A 30-year fixed-rate mortgage at 4.50 percent is a level apparently targeted by policy makers.
Moody's Economy.com forecasts interest rates hitting 4.50 percent by the middle of 2009 after dropping to a low of 4.37 percent in the second quarter. But, by the third quarter and fourth quarter interest rates will be climbing to 4.57 percent and 5.18 percent, respectively. By the first quarter of 2010, rates should be at 5.87 percent, Chen said.
"Low mortgage rates are important, but there is no evidence that lenders are lending and that is crucial," she said.
Treasury yields, which move inversely to price, are linked to mortgage rates. The Treasury is seeking to fund an estimated deficit of $1 trillion or more over the coming year.
TOO LOFTY A GOAL
Cameron Findlay, chief economist at online loan broker LendingTree.com in Charlotte, North Carolina, said mortgage rates at 4.50 percent remained possible, but not probable. "For now the Fed has implemented change to entice rates to decline and are in a holding pattern to see the impact," he said.
"Up until a few weeks ago, people thought 4.50 percent was a realistic target for rates within 60-90 days, but that idea has dissolved," he said.
What has changed since November is the Fed's decision to ax interest rates to almost zero to help revive the economy, leaving the central bank with fewer options to cut rates. Findlay said mortgage rates should stay in a range between 5.00 percent and 5.50 percent for the next eight weeks or so barring any additional Federal Reserve action. Expectations of a 30-year fixed-rate mortgage at 4.50 percent are too ambitious, said Greg McBride, senior financial analyst at Bankrate, Inc, in North Palm Beach, Florida.
"Inflation worries may begin to spook investors and that could send Treasury yields higher, which would cause a corresponding move higher in mortgage rates," he said.
"Real Estate Resurrection Begins in California" from Forbes.com on Jan 8, 2009. "U.S. Treasury May Look to Take Rates down to 4.5%"
"In some of the hardest-hit areas, like California, Florida and Nevada, sales in some areas have been rising in recent months..."
I admit, this is an optimistic article. There are just as many articles that are saying 2009 will be another very depressing year. I will update my blog weekly, and will try to be as even handed as possible about including real estate articles from both perspectives, and most importantly, passing along relevant statistics for the Los Angeles Market.
FYI, this article is in line with what I'm seeing so far this year. My current clients as well as the buyers I meet out in the field, all seem to be of the mindset that 2008 was their time to wait, but now that the new year (2009) is here, they want to be more aggressive about finding something.
-Jerry
Real Estate Resurrection Begins
Hugh Bromma, Entrust Group, 01.08.09, 03:45 PM EST
Direct Link
While the data on prices and sales are still awful on a nationwide basis, there are rays of hope emerging for real estate.
Sales of new and existing homes continue to decline in the U.S., as assets of all stripes are re-priced lower and consumers become more risk averse. But the news in real estate is not all bad, and in some of the hardest-hit areas, like California, Florida and Nevada, sales in some areas have been rising in recent months.
While the national real estate figures show the country continues to be mired in a downturn that started more than two years ago, there are increasingly pockets of hope out there. It's true that much of the recent uptick in real estate activity reflects distressed sales, such as foreclosures. But the fact is that drastically lower home prices and more attractive mortgage rates--rates are down almost a full percentage point on a 30-year loan--are creating more buying interest, especially in the areas that have been hurt the most.
In fact, October existing-home sales surged more than 37% in the West, primarily because of the rise in sales in California and Nevada. And in Florida, existing-home sales jumped 15%, the second straight month of rising sales in the Sunshine State. Meanwhile, mortgage applications more than doubled during the week of Thanksgiving because of the rapid decline in rates.
Adding to the budding sense of optimism are reports that the U.S. Treasury will look to take mortgage rates all the way down to 4.5%, which would provide a huge boost to would-be home buyers across the country. Of course, real estate, even more than politics, is all about understanding the local area, which is precisely where astute investors are finding extraordinary opportunities.
Experienced real estate investors who have been able to keep some powder dry and understand their local markets are now able to buy properties for 50 cents on the dollar, or even less than just a year ago. In many cases, these are the kind of prices that represent once-in-a-lifetime opportunities, where the downside is now very limited and the upside is incredibly compelling.
Comment On This Story
One of the keys to finding a great real estate investment is understanding the importance of cash flow. We recently had a client utilize his self-directed IRA to purchase a brand new property just outside of Los Angeles. The property, a three-bedroom, two-bath single family home, was purchased for about $150,000, half what the exact same home would have cost a year earlier.
The purchaser had about $60,000 in the IRA and put down about 30% of the purchase price, making his monthly mortgage payment approximately $1,100 per month. In this area, similar properties rent for at least $1,400, so the property should have no problem showing positive cash flow right from the start. In addition, if there is a pick-up in the real estate market, the purchaser should be able to sell it outright for a handsome profit.
This is the kind of activity we are seeing more of in what were the hardest-hit areas. The key, of course, is having available cash--if you're buying real estate in a self-directed retirement account, you will need to put down 30% of the purchase price--and understanding the unique dynamics of the market you are buying in.
Dugg on Forbes.com
As a large administrator of self-directed IRAs, we've witnessed thousands of investors use their self-directed retirement plans to buy properties and realize excellent returns by selling them at a later date or renting them and allowing them to cash flow, as discussed earlier.
If you do decide to explore some of the more downtrodden areas, do your due diligence and understand the market in which you plan to invest. How is the local job market there? How has the area done in previous economic downturns? There's no substitute for knowing your market and doing your homework.
I admit, this is an optimistic article. There are just as many articles that are saying 2009 will be another very depressing year. I will update my blog weekly, and will try to be as even handed as possible about including real estate articles from both perspectives, and most importantly, passing along relevant statistics for the Los Angeles Market.
FYI, this article is in line with what I'm seeing so far this year. My current clients as well as the buyers I meet out in the field, all seem to be of the mindset that 2008 was their time to wait, but now that the new year (2009) is here, they want to be more aggressive about finding something.
-Jerry
Real Estate Resurrection Begins
Hugh Bromma, Entrust Group, 01.08.09, 03:45 PM EST
Direct Link
While the data on prices and sales are still awful on a nationwide basis, there are rays of hope emerging for real estate.
Sales of new and existing homes continue to decline in the U.S., as assets of all stripes are re-priced lower and consumers become more risk averse. But the news in real estate is not all bad, and in some of the hardest-hit areas, like California, Florida and Nevada, sales in some areas have been rising in recent months.
While the national real estate figures show the country continues to be mired in a downturn that started more than two years ago, there are increasingly pockets of hope out there. It's true that much of the recent uptick in real estate activity reflects distressed sales, such as foreclosures. But the fact is that drastically lower home prices and more attractive mortgage rates--rates are down almost a full percentage point on a 30-year loan--are creating more buying interest, especially in the areas that have been hurt the most.
In fact, October existing-home sales surged more than 37% in the West, primarily because of the rise in sales in California and Nevada. And in Florida, existing-home sales jumped 15%, the second straight month of rising sales in the Sunshine State. Meanwhile, mortgage applications more than doubled during the week of Thanksgiving because of the rapid decline in rates.
Adding to the budding sense of optimism are reports that the U.S. Treasury will look to take mortgage rates all the way down to 4.5%, which would provide a huge boost to would-be home buyers across the country. Of course, real estate, even more than politics, is all about understanding the local area, which is precisely where astute investors are finding extraordinary opportunities.
Experienced real estate investors who have been able to keep some powder dry and understand their local markets are now able to buy properties for 50 cents on the dollar, or even less than just a year ago. In many cases, these are the kind of prices that represent once-in-a-lifetime opportunities, where the downside is now very limited and the upside is incredibly compelling.
Comment On This Story
One of the keys to finding a great real estate investment is understanding the importance of cash flow. We recently had a client utilize his self-directed IRA to purchase a brand new property just outside of Los Angeles. The property, a three-bedroom, two-bath single family home, was purchased for about $150,000, half what the exact same home would have cost a year earlier.
The purchaser had about $60,000 in the IRA and put down about 30% of the purchase price, making his monthly mortgage payment approximately $1,100 per month. In this area, similar properties rent for at least $1,400, so the property should have no problem showing positive cash flow right from the start. In addition, if there is a pick-up in the real estate market, the purchaser should be able to sell it outright for a handsome profit.
This is the kind of activity we are seeing more of in what were the hardest-hit areas. The key, of course, is having available cash--if you're buying real estate in a self-directed retirement account, you will need to put down 30% of the purchase price--and understanding the unique dynamics of the market you are buying in.
Dugg on Forbes.com
As a large administrator of self-directed IRAs, we've witnessed thousands of investors use their self-directed retirement plans to buy properties and realize excellent returns by selling them at a later date or renting them and allowing them to cash flow, as discussed earlier.
If you do decide to explore some of the more downtrodden areas, do your due diligence and understand the market in which you plan to invest. How is the local job market there? How has the area done in previous economic downturns? There's no substitute for knowing your market and doing your homework.
Thursday, January 8, 2009
Q & A with Jerry: When should I get pre-qualified? How do I get realtors to stop soliciting me?
Happy New Year folks! My new years resolutions regarding my real estate business was to find a more efficient way to keep my clients and friends informed about real estate. So with that, i present to you....ta da...My new blog. :)
Last week I was talking to two friends of mine who are dating and looking to buy their first home in the Brentwood and Pacific Palisades soon. They asked a lot of questions, but there were two that stood out. I followed up with them through email and here are the responses:
Question: So we've started looking at open houses, but we don't really have a time frame. We are mainly looking for the right deal, so we don't feel like we need to be in a rush to meet with a mortgage broker as we both have stable, well-paying incomes. At what point in the process do we need to get pre-qualified? Also, how hard it the pre-qual process?
The process in and of itself is quite easy, I have no doubt you two will qualify. Pre-qualification is the easier first phase. Pre-approval requires a bit more, but is also fairly painless. In real estate, any good agent will tell you that any offer you write should always be accompanied by a pre-approval letter…no exception. Usually, the pre-qual process when you first meet with a mortgage broker goes like this: (1) You fill out a one page form stating how much money you make per month and year, what your expenses are, and what your savings are, (2) They will run your credit, (3) they will probably ask for your last 2 check stubs. From this, they should be able to pre-qualify you. To move forward to full pre-approval, they may ask to see more verification of income and probably will want to see your last years tax returns. There’s really not much more than that. Your mortgage broker can advise you on what program will suit your needs best, everyone has different needs.
As far as when to get pre-approved, I would advise you do it sooner rather than later. It’s a fairly easy process that really requires no further obligation, and I’ve always felt it’s better to know exactly what to expect before getting your wheels turning. From a professional standpoint as a realtor, I have found that the best properties come on the market and get swept up within the first week (yes, even in this market, a deal is still a deal, and buyers will recognize it.), and I’ve had clients that missed out on homes because they had a delay getting their pre-approval together. Good agents will generally have their clients pre-approved as early as possible so there won’t be any delay when the right home comes along.
Finally, find someone you can trust. Referrals from friends and family are a good way to go. I have a great lender I work with, and am happy to pass his information along.
Question: So, I think someone told me that realtors make 6% on a deal, split between the agents, but if the listing agent represents both sides, he gets the entire 6%. So is there any discount for working without an agent?
As we discussed yesterday, the seller will pay a commission on the sale of a home that is agreed upon at the time of listing. When the home sells, the buyer’s agent and listing agent split that commission. Usually it’s 6%, but for homes over a million it is often 5%. The buyer never pays any commission. If you are a buyer, you should probably find your own agent. Someone you can trust and will work for you. The idea of working without an agent is one that is often misunderstood. When you go through the listing agent, the listing agent then becomes your agent and gets the entire commission. Furthermore, it is important to understand that it is hard, if not impossible, to simultaneously represent two opposing interests, in this case, the seller and the buyer.
In the end, most listing agents loyalty, as you could understand, will lie with the seller first. They will do what you ask, but will not proactively fight for you. That is not what the seller would want. That said, it is possible for a listing agent representing both sides to discount his commission, however, this is all a little grey. What I mean is, in the end, who knows if this money benefitted the buyer or the seller. Furthermore, a good buyers agent will fight for a better deal for you and fight to get you credits in escrow. Having a buyer's agent is FREE. Think about that. It's free. Why would you not want to choose someone you know specifically will give you the best representation if it does not cost you anything, right?
Question: Since we've started looking at homes, I swear I get about 4 calls a day from realtors. At this point, if I don't recognize the number, i just let it go to voice mail. I think I had 3 calls already today! Is there a different way we should be going about this?
The ONE piece of advice I would give you as a first timer ABOVE all else is this: It is much better to have one agent working for you diligently than to have a few or more agents working for you on a haphazard basis. Per our conversation yesterday, I think you are already starting to feel what it feels like to be bombarded by realtors trying to become your agent. It’s annoying. You might as well find someone who really willing to go all out for you and just stick with them. As mentioned before, all agents have access to the same information. In the end, what sets agents apart are (1) the legwork they put in behind the scenes (previewing properties, making calls, going to broker’s opens for you) and (2) Their negotiation expertise and how hard they are willing to fight for you for credits in escrow.
For me personally, once I know you want me to be your guy, I would definitely start doing a lot more research behind the scenes for your benefit. In laymans terms, that means I will start previewing properties for you all the time, looking for the “deal” properties/opportunities, and letting you know about them as quickly as possible. That’s it in a nutshell.
The other advice I would give is, stop signing in at open houses. That’s like an invitation for solicitation. When you decide that you have found your agent, call all those other agents, and tell them “Thank you, but could you please stop contacting me as I’m working with a Realtor.” Any good agent will respect that. No more explanation needed. Keep in mind, if you don't communicate to realtors to stop contacting you, don't blame them if they continue contacting you. It's their job to put buyers and sellers together, and contacting people like you is part of the job description!
There’s a lot more information about stuff like this at my website’s Frequently Asked Question section: http://www.newhomesla.com/frequently_asked_questions-c4986.html
-Jerry
Last week I was talking to two friends of mine who are dating and looking to buy their first home in the Brentwood and Pacific Palisades soon. They asked a lot of questions, but there were two that stood out. I followed up with them through email and here are the responses:
Question: So we've started looking at open houses, but we don't really have a time frame. We are mainly looking for the right deal, so we don't feel like we need to be in a rush to meet with a mortgage broker as we both have stable, well-paying incomes. At what point in the process do we need to get pre-qualified? Also, how hard it the pre-qual process?
The process in and of itself is quite easy, I have no doubt you two will qualify. Pre-qualification is the easier first phase. Pre-approval requires a bit more, but is also fairly painless. In real estate, any good agent will tell you that any offer you write should always be accompanied by a pre-approval letter…no exception. Usually, the pre-qual process when you first meet with a mortgage broker goes like this: (1) You fill out a one page form stating how much money you make per month and year, what your expenses are, and what your savings are, (2) They will run your credit, (3) they will probably ask for your last 2 check stubs. From this, they should be able to pre-qualify you. To move forward to full pre-approval, they may ask to see more verification of income and probably will want to see your last years tax returns. There’s really not much more than that. Your mortgage broker can advise you on what program will suit your needs best, everyone has different needs.
As far as when to get pre-approved, I would advise you do it sooner rather than later. It’s a fairly easy process that really requires no further obligation, and I’ve always felt it’s better to know exactly what to expect before getting your wheels turning. From a professional standpoint as a realtor, I have found that the best properties come on the market and get swept up within the first week (yes, even in this market, a deal is still a deal, and buyers will recognize it.), and I’ve had clients that missed out on homes because they had a delay getting their pre-approval together. Good agents will generally have their clients pre-approved as early as possible so there won’t be any delay when the right home comes along.
Finally, find someone you can trust. Referrals from friends and family are a good way to go. I have a great lender I work with, and am happy to pass his information along.
Question: So, I think someone told me that realtors make 6% on a deal, split between the agents, but if the listing agent represents both sides, he gets the entire 6%. So is there any discount for working without an agent?
As we discussed yesterday, the seller will pay a commission on the sale of a home that is agreed upon at the time of listing. When the home sells, the buyer’s agent and listing agent split that commission. Usually it’s 6%, but for homes over a million it is often 5%. The buyer never pays any commission. If you are a buyer, you should probably find your own agent. Someone you can trust and will work for you. The idea of working without an agent is one that is often misunderstood. When you go through the listing agent, the listing agent then becomes your agent and gets the entire commission. Furthermore, it is important to understand that it is hard, if not impossible, to simultaneously represent two opposing interests, in this case, the seller and the buyer.
In the end, most listing agents loyalty, as you could understand, will lie with the seller first. They will do what you ask, but will not proactively fight for you. That is not what the seller would want. That said, it is possible for a listing agent representing both sides to discount his commission, however, this is all a little grey. What I mean is, in the end, who knows if this money benefitted the buyer or the seller. Furthermore, a good buyers agent will fight for a better deal for you and fight to get you credits in escrow. Having a buyer's agent is FREE. Think about that. It's free. Why would you not want to choose someone you know specifically will give you the best representation if it does not cost you anything, right?
Question: Since we've started looking at homes, I swear I get about 4 calls a day from realtors. At this point, if I don't recognize the number, i just let it go to voice mail. I think I had 3 calls already today! Is there a different way we should be going about this?
The ONE piece of advice I would give you as a first timer ABOVE all else is this: It is much better to have one agent working for you diligently than to have a few or more agents working for you on a haphazard basis. Per our conversation yesterday, I think you are already starting to feel what it feels like to be bombarded by realtors trying to become your agent. It’s annoying. You might as well find someone who really willing to go all out for you and just stick with them. As mentioned before, all agents have access to the same information. In the end, what sets agents apart are (1) the legwork they put in behind the scenes (previewing properties, making calls, going to broker’s opens for you) and (2) Their negotiation expertise and how hard they are willing to fight for you for credits in escrow.
For me personally, once I know you want me to be your guy, I would definitely start doing a lot more research behind the scenes for your benefit. In laymans terms, that means I will start previewing properties for you all the time, looking for the “deal” properties/opportunities, and letting you know about them as quickly as possible. That’s it in a nutshell.
The other advice I would give is, stop signing in at open houses. That’s like an invitation for solicitation. When you decide that you have found your agent, call all those other agents, and tell them “Thank you, but could you please stop contacting me as I’m working with a Realtor.” Any good agent will respect that. No more explanation needed. Keep in mind, if you don't communicate to realtors to stop contacting you, don't blame them if they continue contacting you. It's their job to put buyers and sellers together, and contacting people like you is part of the job description!
There’s a lot more information about stuff like this at my website’s Frequently Asked Question section: http://www.newhomesla.com/frequently_asked_questions-c4986.html
-Jerry
Subscribe to:
Posts (Atom)