Taking Advantage of Today’s Market: Investments, Retirement and Second Homes
Housing inventories are up, which means prices are low, and interest rates are still great. Put those together and you’ve got the perfect opportunity to buy a new home. But what if you already have a home you love? Are you out of the market?
Not necessarily! Have you considered buying a second or investment home, or planning for your retirement? If you are in good financial standing with good credit, this is a way you can be part of this amazing real estate market — there may never be a better time to buy! This could be the chance of a lifetime to purchase additional real estate before rates are no longer at these historic lows.
Location, Location, Location
If you’re looking for a vacation or second home, there are a lot of highly desirable areas hard hit by the downturn in the housing market that will yield great bargains. Locations with a lot of foreclosures such as Arizona, in the Phoenix and Scottsdale areas; Central and Southern California, in San Diego, San Jose and Salinas; and Miami and Panama City in Florida still have lovely properties in good shape — and these are historically great vacation spots, for you or for renting out to other travelers! Look to a national real estate company to find an agent who can help you review properties in another state.
But a vacation home doesn’t have to be a plane ride away. If you want to be able to pack up the family and drive a couple of hours to your vacation destination, saving some travel money and ensuring you’ll use the property more than once a year, then just take a look around your home state. If you’re in the city, consider a country cottage; leave your beach bungalow for a mountain retreat. If you’ve always wanted a change of scenery available when the mood strikes you, now is your chance to make that desire a reality.
If you’re pondering a retirement home, there are other factors you’ll need to consider. Do you need to stay close to family for frequent visits, or should your home be a getaway for the grandkids? Do you want a strong senior community with lots of planned activities and meetings to keep you busy, or a quiet retreat where you can be left to your own devices? These factors will influence whether you choose a retirement community in Florida or a city like Austin, Texas, with a lively arts and music scene, for your next home.
Rentals Rise
Another way to take advantage of today’s rates and housing prices is to purchase property that you then turn around and rent. Rental properties are commanding higher and higher prices as foreclosures rise and fewer people are making home purchases. In cities around the country you should be able to charge enough rent to cover your mortgage and a home repair program — and still possibly even make a little profit on top. Be sure you research rental prices in your selected area before you buy, however, so you don’t end up pricing yourself out of the market.
Prices are so low in some areas that you also have the option of just buying and holding property instead of needing to rent it out. Cities in Oklahoma, Pennsylvania and Tennessee currently have very low home prices, but Forbes.com predicts they’ll gain value in the next year. Buy low, sell high — even in a crazy housing market like this one, some tenets stay true.
Expert Advice
Look for a real estate agent who is well-versed in investment properties, especially if you are buying a property to rent in a location far from home. If you’re looking at investing in a townhouse or single-family home, you’ll need their knowledge of the area to ensure you buy in a neighborhood well-suited to renting; if you’re plunging into the apartment market, you’ll need them to help you find a property in good shape, and probably to select a management company or reliable repair service you can line up in advance. Another option is to partner with a seasoned real estate investor, providing the capital and relying on your partner’s instincts to make good choices and get a decent return on your investment.
If you’re looking for a home to use yourself or to move into upon retirement, your best bet is to visit the area yourself and engage an agent while you are there. This way you can be sure the home has all the features and amenities that are important to you and your family.
It’s a great time to jump into the real estate market as an investor or to make that second-home or retirement-home purchase, but it won’t last. Interest rates are beginning to creep up and market watchers are seeing signs of an end to this low-cost, high-inventory period. Talk to me today about your financial goals and take advantage of today’s market before this opportunity is gone!
Contact me today to learn more.
The Magic and Frustration of Real Estate
The real estate market can be both magical and frustrating all at the same time. In many parts of the Bay Area, such as PaloAlto, the Sunset, Burlingame, or Mill Valley, it’s as if we are back in the 2004 real estate market where every property hadmultiple offers and lots of them were all cash offers. In other parts of the Bay Area, however, like Oakland, Novato, Vallejo, and parts of San Jose, the market is much softer and has not yet rebounded. Sales still happen in these areas, but only if the property is priced right. Additionally, much of the inventory is still made up of foreclosures and short sales. Even if these areas may not be hot, they still present a great opportunity for investors and first time homebuyers. It is amazing how locations a few miles apart can see diverging trends.
While markets like Palo Alto can bear price increases, multiple offers, and a healthy pace of sales, there are several other markets throughout the Bay Area that cannot. In real estate, it is all relative. Each sale needs just one seller and one buyer. The value is determined by who is the seller, the profile and capability of the buyer, the support of the lender, the type of real estate you are buying or selling, inventory, days on the market of the competition, list / sales price of past sales, and whether you are in a negotiating situation or a competitive world fighting against all cash multiple offers.
The key to navigating all of this is education. You need to know what market you are selling or buying in and what will it take to get the house sold or to buy one. The rules are not only different in different areas, but they can also change daily based on what is selling and at what price point. Additionally, the media confuses us even more. ZIllow will tell us that home prices fell 3% in the first quarter, the steepest decline since 2008, and Fiserv Inc. is predicting home values still have 5-10% more to decline. Yet, this is not what homebuyers who are trying to buy a home in Palo Alto or the Sunset are experiencing.
So, what does all of this mean? What we can say is that what should be is sometimes, what seems logical is sometimes, and what can be often is just because it can be. That’s the magic and frustration of real estate. There are no set rules and the journey is often not the one we expected. In the end, buy in a good location, take out a conservative loan, and wait 5 years. From Palo Alto to Novato, real estate will reward you.
Why should I buy instead of rent?
The long term financial benefits of buying are pretty clear to most people. You gain equity in your home, you have an asset rather than just giving money to your landlord each month. You also have free reign of your space to do with as you want, home improvement projects, painting, etc!
But beyond the obvious financial benefits you also have the security of your own home, pride of ownership and community that comes along with it! Now is a time that many people are being cautious and staying on the sidelines. Interestingly, it is times like these that people often look back at and say, “I should have done it then”.
Rehabilitating Your Dream Home
Home buying can be a nerve-wracking experience. You sift through multiple properties, visit the ones that grab your interest, and then finally decide on your dream home — but there’s just one problem: it’s a fixer-upper desperately in need of some TLC.
That dilemma is not uncommon today. Perhaps the home was treated poorly by a long string of renters, the owner ignored a serious problem or key fixtures were even sold off. Whatever the case, don’t be shocked or overly disappointed. Increasingly, home buyers are faced with the prospect of buying a fixer-upper in today’s real estate market.
Often, attractively priced properties that are foreclosure sales can sometimes come with cosmetic problems that may seem huge. It is not uncommon for a homebuyer to walk through a foreclosed home and discover that the kitchen was gutted by the former owners who sold off not only the appliances, but the cabinetry to boot.
This can even turn into a real problem that could hamper obtaining financing because often missing fixtures such as toilets and sinks can render the house “unlivable” per code. Who wants to buy a home they legally cannot inhabit?
Fortunately, there’s a government loan program available that can help you with that fixer-upper you wish to purchase. The Federal Housing Administration created the 203(k) loan specifically to help homebuyers rehabilitate homes they wish to purchase to live in, but that are in disrepair. A 203(k) loan lets a qualified borrower not only finance the purchase price of the home, but also include the price of the necessary repairs to the home.
A Closer Look
Again, the goal is for the buyer to live in the home, so this is not for investors. So the types of properties that qualify for the loan are:
* Single-family dwellings up to units that house no more than four families
* The residential portion of a mixed-use property (i.e., a property that is both commercial and residential in nature)
* An existing construction that has been finished for at least one year
* A home that will be torn down, but where the foundation will still remain
* A home that will be moved to a new foundation
* FHA-approved condos
There are two types of 203(k) loans, and the one that is right for your intended property depends on how much work needs to be done.
In terms of amount, a streamlined 203(k) provides up to $35,000 that can be added to the loan to cover the improvements, in addition to the purchase price of the home. For a standard 203(k), the homeowner can borrow the purchase price of the home, plus the price of the improvements, up to 110 percent of the home’s expected value after the improvements. (And again, this is assuming you can qualify for the total loan amount.) The money for the improvements is actually put into an escrow account that is used to pay for materials and the parties being contracted to do the work to the home.
Time is an important element of 203(k) loans. You must start construction within 30 days of the close of the loan and your work must be completed within six months. This might leave you wondering: what do you do if the house isn’t habitable? With a standard 203(k), you may be able to finance up to six months’ mortgage payments so that you can afford to live somewhere else while the construction is in progress.
Another critical time element is the paperwork. FHA rehab loans can take longer to close with a lender that doesn’t have experience with them, because there is more paperwork. So to avoid those sorts of delays, make sure you work with a lending professional that is experienced with 203(k) loans.
What kind of improvements are covered? 203(k) loans support a broad range of rehab work, including painting; room additions and second story additions; decks and patios; grading and drainage; bathroom and kitchen remodels; finished attics and basements; structural changes and repairs; environmental rehab such as removing lead paint or making energy conservation improvements; roofing; flooring; and accessibility upgrades for disabled residents. But what’s not covered are major luxury upgrades, such as a swimming pool or hot tub. That said, when upgrading your bathroom, for instance, you might be able to install a whirlpool bath tub. Again, the key is to speak with an experienced 203(k) lender that is well-versed in the details of the program.
Ultimately, what does a 203(k) loan mean for you? Freedom. The freedom to choose the home that is perfect for you and that you love, even if it needs some work that you would otherwise not be able to finance. If you or anyone you know is currently home shopping, but some of the properties you’re finding need some attention, I would love to help you review your financing options. Please contact me at the information provided on this message — and happy hunting!
Contact me today to learn more!
The Mortgage Lender/REALTOR® Relationship
As a mortgage lender, I have worked with both REALTORS® and Real Estate Agents, but I prefer and always recommend working with REALTORS®, as they adhere to a very strict set of guidelines and code of ethics. But do you know the difference between the two? This article explains the difference in detail, read on for more information!
Expect a Shift in Building Trends
When home building comes back, it will look much different than it does today as trends and needs have shifted. By 2015, housing development will see the following changes:
- Master planned communities will look different and be styled to appeal to more buyers.
- How planned communities look will depend on their location in the country.
- Builders will think more in terms of life style rather than type of buyer (first-time, move-up). Things to consider or multi-generational living, baby boomers that might want single floor living, low maintenance, and lots of amenities,
etc. - The bigger is better trend is declining and the median size of new homes is either holding steady or declining.
- A home that has a smaller lot with less landscaping and room for vegetable plots is more appealing.
- People want flexible, open spaces that are energy efficient.
What’s Hot in Real Estate – The Rental Market
Investors who purchase apartment houses see better deals now than in the last four years. In contrast to housing, where prices are low, inventory high, loans are difficult to get, and 40% of the market is foreclosures or short sales, the rental market (especially apartments) have rents growing, vacancies declining, and can produce cash flow that is positive from day one. In fact, rents nationwide now average $991, which is up from $930 in 2006. Here in the San Francisco Bay Area, the average is $ 1,025 to $1,200, because there are less units available here and there has been very little building in the last few years.
So, if you are thinking about investing in a rental property, think apartments and here is what you should look for:
- A property that produces at least 6% return on your cash investment in the first year.
- Expenses that do not exceed 40% of the gross income
- A cap rate percentage the higher the better and a debt service coverage ratio that is the lower the better
- A property that gets you to break even or cash flow positive day one
And, if you don’t want to be an owner, consider Real Estate REITS– they are hot again. They pass along on average 90% of their income to their investors each year and are returning in some cases 20% percent.
Flooding the World with Dollars Affects Everything Including Real Estate
On November 3rd of last year, the Federal Reserve chairman announced another round of quantitative easing, which really translates into purposefully expanding the supply of dollars and raising projections for inflation. Called QE2 for short, the Federal Reserve is buying up to $600 Billion in long-term Treasury Securities from January 2011 through June 2011. In other words, the Fed is creating new money out of nothing as they exchange T-certificates held by banks for a deposit of previously nonexistent dollars into the bank. Officials say QE2 is necessary to get the economy going and reduce unemployment, which is perhaps true in the short-term. It also makes prices on US goods more competitive around the world as it causes the value of the dollar to fall.
When you look at the long-term, however, the release of billions of new dollars is really a backdoor temporary solution that carries long-term ripples. It keeps interest rates low, but artificially so. Once the easing is over, rates move up and quickly. As mortgage rates increase, commodity prices soar and they are already. There is a rush to purchase gold and silver and everything gets more expensive. Real estate will be affected too – the higher rates prices some buyers out of the market and prices may go up, but it will be related to the bubble of inflation not true appreciation.
Home Staging Color Challenge
After five years in the home staging business I can tell you that almost every house presents itself with a unique design challenge. It might be a difficult floor plan, an outdated appearance or a color challenge that leaves me particularly perplexed. My job, after all, is to accentuate the best of a home’s features and downplay its worst. With 92% of buyers previewing homes on the internet, having a beautifully staged home for a virtual tour is essential in a home marketing plan.
Now, in many cases of home staging I can paint beautiful colors on the walls, update kitchens and bath or replace old flooring, as seen in some of my other projects. However, in some cases, such as the one on 809 Pinon Ave Millbrae I am left to design around an existing color challenge.
Color challenges of a home might be a rustic brick fireplace surround in an otherwise contemporary space. The dark red brick color against creamy neutral walls with white crown moldings appear in sharp contrast to one another and draw the eye toward the stronger color. Or, a color challenge might be a strong accent wall color that cannot be painted over for a variety of reasons.
As you will see in the before and after pictures of the 809 Pinon Ave house one wall in the living room as well as the entry were painted a strong salmon color. At the opposite end of the room is a sunroom, which was painted a soft, green. My color challenge in this home staging was to incorporate both of these colors into one harmonious design. I want to downplay the stark contrast between the dark salmon and the white wall by placing either color on the contrasting wall. The secret to the success of the design was color balancing the space with a rug that incorporated all of the colors as well as the black of the fireplace surround. A lighter colored rug would have left the space “floating” and off kilter. This darker rug draws the eye away from the wall and into the seating area.
An additional color challenge was in the dining room with the terra cotta tile floor. The color balance was achieved with the art and floral arrangement complimenting all three colors.
Sometimes in my home staging I need to purchase a specific design element to successfully complete my project. In this home staging color challenge I purchased the art and rug, both of which had the salmon color as well as the green tones.
Color increases the memory of a property by 60%. People viewing this property will remember it by it’s living room color. Professionally home staging this property helped neutralize a strong accent color by blending the color around the room. It also created more appealing photographs for a virtual tour.
Please give me a call or send me a message if you have any questions about home staging and/or color challenges.
Is a Refinance Right for You?
Purchasing and financing a home is a major financial undertaking filled with complexity and tough decisions. As the saying goes, it is one of the most important financial decisions you will make in your life. The money you pay over the life of a loan is significant, and small variables can have huge outcomes over time. That said, your home’s financing isn’t final. The decisions you made in the past were based on an idea of how things might play out in your future. However, your income, the mortgage market and the real estate market can change. This is why you should always assess the applicability of your mortgage to your current situation and future plans to determine if a refinance is in order. In fact, there are a variety of reasons you might want to refinance:
Important Considerations
Whatever your reasons for wanting to refinance, there are a number of factors you’ll want to consider. For starters, you want to make sure that your current loan does not have a pre-payment penalty for refinancing. Such a penalty says that you cannot pay off your loan too early. If you have one in place, you’ll want to make sure you are outside that penalty phase (these typically last between one and five years). Another key concern is whether or not the costs of a refinance are recouped by your lower rate. All loans have closing costs associated with them, and you want to make sure that whatever savings your new loan delivers will also be worth the closing costs. Typically, you want the savings you gain over the life of the new loan to recoup your closing costs within two years. Compare the overall cost of the new loan to the cost of the old loan. Take the remaining months of your existing loan and multiply them by your principal and interest payments and compare that product to the same calculation for the new loan. Is it lower? Is it higher? How large is the difference? Obviously the goal is for the overall cost of the new loan to ring in at less than that of old loan, but if a cash-out is involved, you’ll need to account for that. Factor in the tax deductions of the new loan in comparison to the old. Are they larger or smaller? By how much? The write-off for mortgage insurance means a lot to most households, so you want to make sure that the money you save on your mortgage won’t be undermined by a less advantageous tax position.* You also can make a deduction for any points you purchase, but there is a difference between how points are deducted in a refinance as opposed to a home purchase. Any points that you pay on the loan for a purchase are deducted for the tax year in which you secured the loan. However, in the case of a refinance, that deduction is amortized over the term of the loan. You’ll want to make sure your calculations reflect that. As you can see, there is a lot to consider, which is why it makes sense to sit down with a home financing expert and review all the key considerations and do all the necessary calculations to ensure you’re making the smartest financial decision you can. Are you considering refinancing your home loan? If so, I would love to help you make the most informed decision possible. Please contact me today! *WJB is not a tax advisory firm. The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. Consult your tax advisor or the IRS for current tax year rules, restrictions and regulations. |
