Wednesday, June 20, 2012

Builders haven't been this busy for three and a half years

Single-family housing starts rise in May, permits jump –

WASHINGTON (AP) – Home builders started work on more single-family homes in May and requested the most permits to build homes and apartments in three and a half years.
  • Troy Drake hammers shingles onto the roof of a new house under construction in the Patrick Farms community in Pearl, Miss.
    By Rogelio V. Solis, AP
    Troy Drake hammers shingles onto the roof of a new house under construction in the Patrick Farms community in Pearl, Miss.
By Rogelio V. Solis, AP
Troy Drake hammers shingles onto the roof of a new house under construction in the Patrick Farms community in Pearl, Miss.

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The increase suggests the housing market is slowly recovering even as other areas of the economy have weakened.
The Commerce Department said Tuesday that builders broke ground on 3.2% more single-family homes in May, a third straight monthly increase.
Overall housing starts fell 4.8% last month to a seasonally adjusted annual rate of 708,000. But that was entirely because of a 21.3% plunge in apartment construction, which can be volatile.
The government also said April was much better for housing starts than first thought. The government revised up the April figures to 744,000 — fastest building pace since October 2008.
And builders are more optimistic about the next 12 months. They requested more permits to build homes, a gauge of future construction. Permits increased to a seasonally adjusted rate of 780,000 — the most since September 2008.
Even with the gains, the rate of construction and the level of permits requested remain roughly half the pace considered healthy. Yet the increases add to other signs that the home market may finally be starting to recover nearly five years after the housing bubble burst.
Builders have grown more confident since last fall, in part because more people are expressing an interest in buying a home. Cheaper mortgages and lower home prices in many markets have made home buying more attractive. Many economists believe housing construction could contribute to overall economic growth this year for the first time since 2005.
Sales of both previously occupied homes and new homes rose near two-year highs in April, the latest data available.
Still, the pace of home sales remains well below healthy levels. Economists say it could be years before the market is fully healed.
Many people are still having difficulty qualifying for home loans or can't afford larger down payments required by banks. Some would-be home buyers are holding off because they fear that home prices could keep falling.
The economy is growing only modestly and job creation slowed sharply in April and May.U.S. employers created only 69,000 jobs in May, the fewest in a year.
Though new homes represent just 20% of the overall home market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to data from the Home Builders.

Sunday, June 17, 2012

Read this checklist before selling your house!

47 Tips By Kelly To Get Your Home Show Ready!

Throughout the House:
1.  Open the draperies, pull up the shades, and let in the sunlight
2.  Create a positive mood.  Turn on all lights, day or  night, and install higher wattage light bulbs to show your home brightly.
3.  Remove clutter from each room to visually enlarge them.
4.  If you have a fireplace, highlight it in your decorating.
5.  Keep your home dusted and vacuumed at all times.
6.  Replace the carpet if it does not clean up well.
7.  Have a family “game plan” to get the home in order quickly if necessary.
8.  Air out your home for one-half hour before showings, if possible.
9.  Lightly spray the house with air freshener so that it has a chance to diffuse before the buyer arrives.
10.  Put family photos in storage.
11.   Improve traffic flow through every room by removing unnecessary furniture.
12.  Create the feeling of a spacious entry area by using decorative accents and removing unnecessary furniture.
13.  Putty over and paint any nail holes or other  mishaps in the walls.
14.  Paint all interior walls a neutral color to brighten the home and make it look bigger.
15.  Repair or replace any loose or damaged wallpaper.
16.  Clean all  light bulbs and light fixtures to brighten the home.
17.  Wash all windows inside and out.
18.  Use plants in transitional areas of your house.
19.  Make the most of your attic’s potential.
20.  Remove and/or hide excess extension cords and exposed wires.
21.  Open doors to areas you want potential buyers to see such as walk-in closets, pantries, attics, etc.
22.  Remove all smoke and pet odors.
23.  Repair or replace banisters and handrails.
In the Kitchen
24.  Microwave a small dish of vanilla twenty minutes before a showing and place it in an
out-of-the-way place.
25.  Highlight an eat-in area in your kitchen with a table set for dinner.
26.  The kitchen and bathrooms should always be spotlessly clean.
27.  Expand your counter space by removing small appliances.
In the Bedrooms
28.  Create a master suite effect in your decorating.
29.  Depersonalize bedrooms and decorate in a neutral scheme.
30.  Make sure that the beds are made and the linens are clean.
31.  Organize your closets, remove unnecessary items and put them in storage.
In the Bathrooms
32.  Do not leave towels around and wipe down the sinks and shower areas after each use.
33.  Re-caulk the tub if the caulk is not sparkling white.
34.  Repair or replace broken tiles in the shower/tub.
35.  Replace shower curtains and keep them clean.
36.  Put out fresh towels and decorative soaps.

37.  Keep the yard mowed and raked at all times.
38.  Use flowering plants to dress up the yard, walkway, and patio.
39.  Remove all toys, bicycles, tools, unsightly patio furniture, and trash from the yard.
40.  Porches, steps, verandas, balconies, patios, and other extensions of the house should be kept uncluttered, swept, and in good condition.
41.  Paint all entrance doors.
42.  Make sure the garage door opens easily.  Fix and paint the garage door if necessary.
43.  Clean and shine all hardware and accessories indoors and out (door knobs, knockers, lamps, mail box, address numbers, etc.)
44.  Trees and shrubs should be trimmed and pruned.
45.  Use a new doormat.
46.  Be sure the front doorbell is in good working order.
47.  Be sure the front door and screen door works perfectly.

Saturday, June 16, 2012

Home Buying Process

8 Steps To Buying A Home

Looking for a new home can be an exciting and challenging experience. Here are 8 steps that will make the experience and process easier for you.

Step 1: Decide to Buy

The decision to purchase your first home is one of the biggest and best decisions you could ever make. After all, a home is the largest (and most emotional) investment most people will ever make.
So, how do you know if it’s the right time for you to buy your first home? There is never a wrong time to buy the right home. The key is finding a good buy and taking the time to carefully evaluate your finances. A home purchase is an important step in the path to long-term wealth. Purchasing your own home is a great investment that provides specific financial advantages, including equity buildup, value appreciation potential and tax benefits. It’s also an automatic savings plan that you cannot get from renting! Here’s the most important rule for keeping your stress to a minimum: you don’t have to know everything. The Kelly Hager Group is ready to help you through every step of the process.

Step 2: Hire Your Agent

When you’re looking for a real estate professional to help you, know that above all else, good agents put their clients first. This is your dream, and your agent is your advocate to help you make your dream come true.
A great real estate agent will:
Educate you about the current conditions of the market.
Analyze what you want and what you need in your next home.
Guide you to homes that fit your criteria.
Coordinate the work of other needed professionals throughout the process.
Negotiate with the seller on your behalf.
Check and double-check paperwork and deadlines.
Solve any problems that may arise.

Step 3: Secure Financing

Ultimately, your lender will pre-approve you for a certain amount, but YOU will decide what you’re comfortable paying every month. Remember, your lender only sees your finances on paper. It’s up to you to decide how much you’re willing to stretch your budget in order to get into your dream home.
Be sure to follow these six steps to financing your home:
Choose a loan officer.
Make a loan application and get preapproved.
Determine what you want to pay and select a loan option.
Submit to the lender an accepted purchase offer contract.
Get an appraisal and title commitment.
Obtain funding at closing.

Step 4: Find Your Home

So you are preapproved and ready to begin your search. But how or where do you begin? There are a lot of homes out there and diving in without a guide can become overwhelming and confusing. A great agent will help you more accurately pinpoint homes that fit your criteria. The right home will meet all your important needs, and as many of your additional wants as possible. Some questions you might ask yourself include:
What do I want my home to be close to?
How much space do I need and why?
Which is more critical: location or size?
Would I be interested in a fixer-upper?
How important is home value appreciation?
Is neighborhood stability a priority?
Would I be interested in a condo?
What features and amenities do I want? Which do I really need?
You’ll learn as you look at homes, your priorities will probably adjust along the way.

Step 5: Make an Offer

Once you’ve found a home you love, the next step is making a compelling offer. While emotions are probably in high gear once you’ve found a home you love, it’s important to remember that a home is an investment. Your agent will research similar properties in the neighborhood to help you determine the market value, and fair price, for your home. Look to your agent to explain and guide you through the offer process.
The three basic components of your purchase offer are price, terms and contingencies.
Price is the dollar amount you are approved for, willing and able to pay.
Terms cover the other financial and timing factors that will be included in the offer.
Contingencies are clauses that let you out of the deal if the house has a problem that didn’t exist or which you weren’t aware of when you went under contract. They specify any event that will need to take place in order for you to fulfill the contract.

Step 6: Perform Due Diligence

Just because you love a particular property doesn’t mean that it’s perfect. In fact, this is where reason has to trump emotion. You’ll need to have a property inspection (which we highly recommend you attend) that will expose hidden issues. This way you’ll know what you are getting into before you sign closing papers.   Your main concern is the possibility of structural damage. This can come from water damage, shifting ground, or poor construction when the house was built.
Don’t sweat the small stuff. It’s the inspector’s job to mark everything discovered no matter how large or small. The inspectors report may be long, but, things that are easily fixed can be overlooked for the time being.   If you have a big problem show up in your inspection report, you should bring in a specialist and if the worst-case scenario turns out to be true, you might want to walk away from the purchase.
Even if your home passes inspection, you’ll still need to buy a home owner’s insurance policy that protects you against loss or damage to the property itself and against liability in case someone sustains an injury while on your property.

Step 7: Close

Once you’ve made your offer and have completed the inspection process, you’re in the “home” stretch! But, in order to ensure that you don’t put your closing date, or your mortgage at risk, you have a few pre-closing responsibilities that you’ll need to be mindful of. These include:
  • Staying in control of your credit and finances. If you are tempted to make any large purchases during this time, it’s best to talk to your lender first.
  •  Keeping in touch with your agent and lender, returning all phone calls and completing paperwork promptly.
    Communicating with your agent at least once or twice a week, and verifying with your lender that all mortgage funding steps are completed.
  • Conducting a final walk-through of the home with your agent.
  • Confirming with your agent, home insurance professional, and lender that you have the settlement statement, certified funds, and evidence of insurance lined up prior to closing.

Step 8: Protect Your Investment

Congratulations, and welcome home! The home-buying process is complete, but just like any big process, there’s a maintenance plan! It’s now your responsibility, and in your best financial interest, to protect your investment for years to come. Performing routine maintenance on your home’s systems is always more affordable than having to fix big problems later. Be sure to watch for signs of leaks, damage, and wear.
And remember, just because the sale is complete, your relationship with your agent doesn’t end! After closing, your agent can still help you – providing information for your tax returns, finding contractors and repair services, and even tracking your home’s current market value.
Looking for a new home can be an exciting and challenging experience. Having a real estate professional that takes the time to understand your unique needs and lifestyle is important.   The Kelly Hager Group works hard to not only find the perfect home for you, but also to handle every last detail of the purchase process, from negotiating the terms of sale to recommending moving companies.

Friday, June 15, 2012

Relocating? Let us assist you through the process

Corporate Relocation

Our motivation consists of providing the most comfortable transition to St. Louis and the surrounding areas as possible. As our client, The Kelly Hager Group takes responsibility for initiation and follow through of the relocation process. Our goal is to create a smooth introduction into the St. Louis community. Research is a valuable tool we use to evaluate and ensure that your needs are being met in every way possible. Rest assured that your everyday activities can continue as scheduled with our superior relocation process.
Services Prior to St. Louis
Private Consultation: Upon introduction, The Kelly Hager Group will research and prepare a customized relocation plan to effectively meet all of your lifestyle preferences. During your private consultation, we guarantee full discretion and confidentiality on all matters. Any concerns or questions about relocating to St. Louis will be resolved by our experienced and knowledgeable group.
Early Relocation Information: After the initial private consultation, we will provide you with information about the local resources and a customized lifestyle guide to the different areas of St. Louis based upon your personal needs assessment. Also included will be builder information along with different properties available throughout the St. Louis area.
  • National & Local Moving Resources
  • Tax Calculator
  • Schools by Area
  • Local House and Decorating Services
  • Local Title, Insurance, & Lending Companies
Customized Lifestyle Guide: Each client’s lifestyle is unique. There are many different activities that take place both within and outside of a home. The home and area of town you choose should fit your lifestyle. We provide customized relocation packets that include the following information:
  • Restaurants
  • Parks
  • Healthcare Facilities
  • Outdoor Recreation Shopping
Personal Attention: As you prepare to move, different situations may arise that require a re-assessment of needs. If any changes arise, we are available through your preference of communication to reassess your needs at anytime.
Upon Arrival to St. Louis
Personal Introduction to St. Louis Meeting: When you arrive in St. Louis, we will introduce you to the many features of the area. During this introduction, while you become familiar with St. Louis, it is the perfect time for us to once again assess your lifestyle needs. This re-evaluation of your needs allows us to provide you with the best home options available.
Scheduled Private Tour of Property Listings: Whether you are buying or building, we will provide a list of recommended properties to view from our St. Louis Properties List website. Our recommendations are based upon your prior needs assessment consultation and our research findings. During your private property tours, your relocation specialist is available to answer any of your relocation concerns and questions.
Home Selection: We ensure a smooth introduction into the St. Louis community. Strong coordination of knowledgeable resources is the key in finding the perfect location for you in the area. Your relocation specialist will help evaluate all of your options to ensure that your needs are met in every way possible. The Kelly Hager Group will work with you from home selection through closing on your new home.
Special Accommodation Package: Moving to a new city is more than just picking a new house. You are moving your whole life. The Kelly Hager Group is full service. We are here to accommodate all of your needs, and provide you with knowledgeable recommendations and assistance of St. Louis. Your time is limited and your relocation specialist will make any accommodations and appointments fit smoothly into your schedule. Some of the special accommodations services we provide are:
  • Rental Cars
  • Airport Pickup
  • Hotel Accommodation
  • Flight & Airport Arrangements
After Your Home Selection: After you have selected your home in St.Louis, The Kelly Hager Group is always at your service. We will continue to help you with any of your home and St.Louis needs, even after your move. Whether you are looking for a plumber, a car dealership, or even a doctor, we are here to help research and provide information.

Thursday, June 14, 2012

The Kelly Hager Group guarantee

Why Buyers Choose The Kelly Hager Group

The Kelly Hager Group Guarantee
When working with The Kelly Hager Group in your home Buying, Selling or building journey, we guarantee the following:
Full access to all homes: We will consistently provide you with a latest listing update and about all homes available in the St. Louis an St. Charles markets, even listings not yet on the MLS, through our professional Missouri real estate affiliations.
Expert Local knowledge of the St. Louis and St. Charles Areas: At The Kelly Hager Group, we believe that a home is not just somewhere to go after a long day at the office. A home should encompass a client’s unique lifestyle. We understand that lifestyle dictates locale. This is why we have analyzed and evaluated the areas of St. Louis. We are happy to provide not just real estate information about each area of St. Louis, but also Schools, neighborhoods, the local economy, and more.
Consistent Market Updates: Every local real estate market absolutely has its own trends and opportunities. This can vary greatly, even one neighborhood to the next.  It’s our job to steer you into opportunities and out of traps.
Award Wining Client Service: The Kelly Hager Group consistently strives to provide our clients with the most professional service available. Winning the “Best in Client Satisfaction Real Estate Agents” award the past five years while generating over $50 million in sales was accomplished through dedication, experience, and extraordinary service.
Expert Negotiations: Negotiating with sellers can be stressful. We will help you negotiate, so that the final contract includes your best possible terms and conditions.
Private Consultation & Home Tours: You should know absolutely everything about the property you are buying! We will view every home that you are interested in, together. And prior to closing we will make you fully aware of any and all inspections available to you.
Informed Decision Making: What is the true market value of the home you are interested in? Is it priced too high? Is it a bargain that you should jump on? We help home buyers make decisions like this every day, and we’ll make sure that you get the best value for your money.
Discretion & Confidentiality: Have confidence when signing documents. Contracts are full of complicated terms and clauses that can greatly affect your future life in your new home. We will give you the full benefit of our real estate knowledge and experience.
Ask us any question about buying a home, it’s our job to help you! There’s no obligation, and we promise to respond quickly…

Worried you don't fit the "Buyer" mold?

An 'Outside the Box' Buyer
Are you in the market to buy, but are limited by certain financial restrictions? You're not alone. The recent recession of 2009 has left a mark on the bank accounts and labor markets of today.
Today's market is considered a "buyers market". What does this mean? It means that certain factors (inventory levels, home prices, days on markets, and supply versus demand) give buyers more leverage at the negotiating tables.
In today's buyers market there are lots of sellers who will be willing to go a more non-traditional route with a sale. They are ready to move on and are eager to find a buyer.
Sometimes it takes thinking outside the box to get the results we want. It's a great time to buy. Affordability is at a generational high and interest rates remain remarkably low, but if you have limited savings or a less than stellar credit report you might find yourself unable to enter the ranks of homeowner.

In cases such as these it's a good idea to explore your options. It's time to think outside the box.
First, be sure to talk to your close family to see if anyone would be willing to help out. This could come in the form of a downpayment gift, a friendly loan for closing costs, or even a more financially stable relative offering to be your "lender." Family loans almost always come with exceptionally low or non-existent interest rates.
These people know you best. Your credit report might say you're high risk, but they know and trust you'll make this kind of payment on time.
They might even be willing to share in a "shared appreciation" or "shared equity" set up. This means they are part owners of the property. Their name is on the mortgage. When the time comes down the road to sell or tap into that equity, they are there for a payday. It's an investment opportunity.
Next, check out what downpayment assistance programs might be available in your area, state, or even on a national level. Search online and ask your local real estate professional for tips on who to call and where to look. Additionally, be sure to visit for tips and programs available through the federal government.
Finally, talk to the seller about their thoughts on non-traditional sales. This might come in the form of a lease with the option to buy. You lease the home and pay a specific dollar amount each month. In essence the seller becomes your landlord.
This gives you time to save up money for the downpayment. You could arrange to buy the home then in a year or several years down the road. If the seller is generous they may even put that monthly "rent" payment towards the final amount of the home.
If they aren't interested in this option, see if they would be willing to serve as the lender for your home. You make payments to the seller instead of a bank. This will generally only work if the seller is in a financial position to wait to get their money.
There are options out there no matter your situation. Be sure to research the options and decide which path is right for you.

Wednesday, June 13, 2012

Can't find your dream-house? Build it!

New Construction

How to Choose a Builder You Can Trust
Having a new home built from the ground up is undoubtedly an exciting project and, with careful planning and research, promises to be a lucrative investment in the end. The most important decision in this process is also the very first one: choosing a builder. After all, choosing the best builder on the market will ensure that you end up with the best home on the market.  Remember, this is someone you will be required to work with closely for an extended period of time — usually for several months during the construction phase alone. Not to mention the warranty period. Look for a builder who will be a true partner to you.
An absolute prerequisite for any builder worthy of your consideration is experience. While we don’t deny that plenty of new builders would get the job done once given the opportunity, it is important to keep in mind that seasoned builders, who have already established a reputation and succeeded in the industry, have done so for a reason.  When seeking referrals, the most logical people to turn to are the ones you know and trust: friends, relatives, neighbors and colleagues. Or, talk to homeowners in subdivisions you’d like to build in to learn about their history with the builder in question. Essentially, you are conducting an interview to find the most qualified candidate for the job, so be prepared to do a full background check. Check the builder’s credentials, awards and recognitions, as well as affiliations with industry associations.
Also, ask the builder for references. Clients who have already been through the home building process with this particular builder can attest to their strengths and weaknesses. Many of these references will even let you inspect their homes, which will allow you to get a first-hand look at the quality and craftsmanship the builder offers.

NOW is the time to BUY

Fixed Rates Reach Record-Low Averages for 6th Consecutive Week

As the employment situation continues to raise concerns, fixed rates fell even lower, slipping yet again to new record-lows, according to a survey from Freddie Macreleased Thursday.
The 30-year fixed-rate mortgage averaged 3.67 percent (0.7 point) for the week ending June 7, falling from last week’s average of 3.75 percent. Last year at this time, the 30-year fixed was 4.49 percent.
The 15-year fixed rate declined even further below 3 percent to 2.94 percent (0.7 point), down from last week’s 2.97 percent. A year ago at this time, the 15-year was 3.68 percent. 
“Fixed mortgage rates reached new record lows for the sixth consecutive week as long-term Treasury bond yields declined further following downwardly revised economic growth and job creation data,” said Frank Nothaft, VP and chief economist for Freddie Mac.
Nothaft cited recent reports showing gross domestic product rose only 1.9 percent in the first quarter as well as the disappointing 69,000 jobs added in May. In addition, the unemployment rate moved to 8.2 percent from 8.1 percent the month before in April.
The 5-year ARM remained unchanged from last week at 2.84 percent (0.7 point); a year ago, the 5-year ARMaveraged 3.28 percent.
The 1-year ARM moved up to 2.79 percent (0.4 point), up from last week’s 2.75 percent. Last year, it averaged 2.95 percent.
Bankrate also released its survey on mortgage rates and reported record-low averages. The 30-year fixed slipped to 3.92 percent, down from last week when it averaged 3.94 percent. On the other hand, the 15-year fixed rose slightly to 3.16 percent from last week’s 3.15 percent.
The five-year fell to 2.99 percent from 3.01 percent last week.
Bankrate’s national survey uses data provided by the top 10 banks and thrifts in the top 10 markets.

Friday, June 8, 2012

The Advantages of Pre-approval

The Advantages of Preapproval

The New York Times

WITH the housing market warming up in many areas, and multiple offers becoming more commonplace, buyers who want an advantage in the bidding process will need more than a mortgageprequalification. They will need a preapproval.

The difference is significant. Prequalifying for a mortgage is based solely on what you disclose to the loanofficer or broker about your earnings, credit score and total assets, including what is available for a down payment.
“It’s verbal — it doesn’t really mean anything,” beyond providing some basic guidance on the range of prices you may be able to afford, said Kevin Chittenden, a vice president and regional sales manager in Paramus, N.J., for Wells Fargo Home Mortgage.
A preapproval, by contrast, requires borrowers to provide documentation of their income and their assets.
The lender typically pulls your credit report and score, and you should gather together almost everything you will need for the actual mortgage underwriting: W-2 wage statements; 1099s, which show things like dividends and interest income; recent pay stubs; bank statements; and statements from Individual Retirement Accounts and 401(k)sand other assets that could show you have the resources to buy and maintain a home.
At Wells Fargo, one of the country’s largest mortgage lenders, the first quick review provided by an underwriter constitutes an agreement to lend. “It’s a real commitment, a commitment to lend,” Mr. Chittenden said.
Other lenders may treat preapprovals as more of an opinion on the person’s ability to borrow, not a guarantee to lend, said Jack Guttentag, who runs the Mortgage Professor Web site. Generally, borrowers need to have chosen a property and have it appraised before they can expect a firm commitment from a lender, he said.
Still, a preapproval is more important now, with so many more homes receiving multiple bids, and because the housing market in many parts of the New York region has been getting stronger.
“Preapproval carries more weight when you go to negotiate a deal,” said Ray Mignone, a certified financial planner in Little Neck, Queens. “It gives them bargaining power.”
Borrowers should ask the lender to provide a good-faith estimate on closing costs and fees along with the preapproval. Many will provide this only once you have a home under contract, but some will give you an estimate of those costs, said Sofi Cordero, a senior housing counselor with La Casa De Don Pedro, which works on affordable housing and neighborhood development in Newark.
The preapproval letter should include the amount a borrower is qualified to borrow, as well as the loan officer’s contact information. Some letters may have an estimated monthly payment. But details about the loan type and interest rate will not be included; those are filled in when you are ready to receive the loan, experts say.
Timing is important. Buyers should aim for obtaining a preapproval letter from a lender within 30 to 60 days of the expected purchase date, Ms. Cordero said. That is because some letters expire in 90 days or so. (Wells Fargo’s, for instance, last for 120 days.)
Your income and bank statements may also need to be updated if it has been a few months between preapproval and the signed contract for buying, Mr. Chittenden said.
Wells Fargo charges would-be borrowers $18 for the credit report for a preapproval; the other costs of the mortgage start once you have a purchase agreement, he said.
Other lenders may waive the preapproval and application fees because they want to sign you on as a customer, Ms. Cordero noted, adding that if you find another lender with better terms, you are under no obligation to use the lender that provided the preapproval

Welcome Paula Bross!

We are so happy to welcome Paula Bross to The Kelly Hager Group! Paula comes with years and years of experience! We are thrilled to have such a terrific real estate negotiator and marketer who is also a pillar of the community join our team.

Thursday, June 7, 2012

The Best Ways to Profit from Distressed Housing

The Best Ways To Profit From Distressed Housing

The following story appears in the June 25, 2012 Investment Guide issue of Forbes Magazine.
Early last year Nicholas Vercollone bought his first property: a run-down three-family Victorian in the working-class Boston suburb of Chelsea for $175,000 in cash. The place, which he spotted, was being sold “as is” by an estate. “There was two feet of snow in the living room, and we were working in raincoats through the spring,” chuckles Vercollone, a 32-year-old carpenter who decided to invest in distressed properties after working on renovations for other investors.
Fourteen months of near-daily labor and $375,000 in home improvement costs later, he put the updated units up for sale: $299,000 apiece for two three-bedroom condos and $270,000 for the two-bedroom third-floor unit. Like many young entrepreneurs, Vercollone financed the deal in part with loans from relatives (more on family lending here). After they, the Realtors and the tax collectors get paid, he figures that if he gets just 90% of his asking price for the units he’ll net up to $50,000.
Not great for a year’s work (he did odd jobs to support himself) but enough to convince him there’s money to be made in distressed residential real estate. Vercollone and his fiancĂ©e just snapped up a two-family house they plan to renovate and hold as a rental—the first of many they hope to own.

Gallery: 12 Must-Know Tips Before Becoming A landlord

Video: Getting Rich In Real Estate

Since the housing bubble burst and the foreclosure wave began, nearly 4 million families have been pushed into the rental market. Meanwhile, the supply of habitable rental units has shrunk, what with new housing starts depressed and many foreclosed homes gone to ruin. The result: Rents are rising. The National Association of Realtors projects a 4% average increase in rents nationally this year and 4% in 2013.
So investors, ranging from large private equity funds to ­carpenter-entrepreneurs, are flocking to housing. The National Association of Realtors estimates investors accounted for 1.23 million home purchases, or 27% of sales, in 2011—up from 749,000 investment purchases, or 17% of sales, in 2010.
Today’s individual investors are a different breed from those who queued up in the early 2000s to buy new Tampa condos on credit, hoping to flip them for a quick profit. Last year half of investment purchases were for cash and half were of distressed properties. The median price paid was $100,000, up 6.4% from $94,000 in 2010. If buyers are planning to flip a property these days, it’s usually after fixing it up. And many are looking for a long-term, stable income play—something paying more than the 2% current yield on ten-year Treasurys.
Goldman Sachs economists estimate that rental properties (acquired at today’s prices) are yielding more than 6% on average nationwide. Even Warren Buffett lauds distressed single-family homes as an attractive investment now.
Tempted? Here are some pointers.
Getting dirty
“When investing in real estate the first question to ask yourself is ‘Do I want to get dirty?’” says Andrew Waite, publisher of Personal Real Estate Investor Magazine. If you have either building skills or a knack for managing contractors, you could pick up a cheap fixer-upper, rehab it and sell it or rent it out.
This is harder than it sounds, although the dearth of new construction means you can probably get quality workmen at reasonable rates in most markets. Vercollone suggests paying a general contractor $200 to $300 to walk through a property you’re serious about buying. (He did.) Take the contractor’s estimate, factor in other costs (taxes, marketing, etc.) and then add 20%, since something unexpected is sure to crop up.
If you want to come in on budget and on schedule, you absolutely have to be a pessimist,” says Billy Procida, whose New Jersey real estate investment firm offers a Fix ’Em & Flip ’Em program. It lends up to 70% of the cost of buying and fixing a home, typically at 12% annual interest, then helps the borrower through the renovation process. (He can charge 12% because getting a bank loan for an investment fixer-upper is so tough.)
If you plan to keep the property and rent it out yourself, that, too, is at least a part-time job. But hiring a property manager could eat up as much as 10% of the rent.
The Clean-Hands Alternative
If you haven’t the time or temperament to supervise renovations or renters, consider “turnkey” property investing. Firms offering this service have popped up around the nation.
MACK Companies, for example, acquires bank-owned houses in the Chicago suburbs, renovates them and then sells them to individual investors for $130,000 to $160,000. It will even finance 60% of the purchase with a five-year balloon mortgage. Chief Executive James McClelland says properties are sold rented, with positive cash flow guaranteed for two years.
Steve Reifel, owner of Cost Containment Solutions, which audits communications bills for companies, just closed on his 11th MACK property, all financed with 20% to 25% down through a community bank (a better deal than MACK’s loans). “For me it’s a diversification strategy: I wanted something that could create more of an annuities-type stream that could offset my primary consulting business,” he says.
His houses are all rented out for $1,500 to $1,700 a month. He clears $475 to $525 per property, after expenses, including mortgage interest, taxes and an $85-a-month per-house management fee to MACK. “It’s not a get-rich-quick-type scheme,” says Reifel. “But these are actual homes that I can walk through and touch and see where my money is.”
Picking A Property
If you’re managing property yourself, you’ll need to stick close to home. But “you don’t want to be in just any market,” cautions Ingo Winzer, founder of Local Market Monitor, a Cary, N.C. firm that tracks housing data for 315 metro markets. The best bets: areas where prices appear to have bottomed and both jobs and population are growing.
Bone up on the capitalization rate: a measure of the rate of return on an investment property based on the expected annual rental income divided by the purchase price. A higher cap rate may come with higher risk, too. Example: Orlando, Fla. offers higher returns than Boston or Washington, D.C. But the future of Florida home prices is still iffy, so you might not be able to break even if you need to unload a property in five years.
Consider using a real estate agent who works directly with the banks. A good one should know how to handle the paperwork on a distressed deal and may have access to properties not yet listed publicly for sale. Check out foreclosure auctions and estate sales, too.
Don’t buy a property just because it’s cheap, McClelland warns. Instead, look for one likely to attract stable tenants. He favors four-bedroom single-family homes with two-car garages in neighborhoods with good schools and easy access to parks, shopping and downtown.
Taxes and Insurance
Becoming a landlord means new legal risks and tax complications. Form a limited liability company to hold your investment property; otherwise, your other assets could be at risk should an accident occur. If you’re not living in the house, you’ll need to pay for a “dwelling” insurance policy, which covers property damage, and a separate policy for liability.
An LLC is what’s known as a pass-through: All its income and deductions are passed through to your personal income tax return. It’s wise to hire a tax pro, at least at the start. But suffice it to say that after you finish claiming depreciation as well as out-of-pocket expenses, you’ll likely show a tax loss on your property, at least in the early years.
If you’re a “real estate professional” those losses are fully deductible against your other income—including a spouse’s salary. To qualify as a pro you must spend at least 750 hours per year and more than 50% of your working hours fixing or managing your properties. That’s tough to prove to the Internal Revenue Service if you also have a regular, full-time job.
If you’re not a pro? Then your losses are “passive” and normally deductible only against income from passive activities—say, other rentals or a partnership you don’t run. A special provision allows $25,000 of passive rental real estate losses to be deducted against nonpassive earnings like salary, but only if you and your spouse have adjusted gross income (not counting rental losses) of $100,000 or less. Above that, the break phases out. (Fortunately, any passive losses you can’t use while you own a property are allowed when you sell it.)
The REIT Alternative
If owning investment real estate directly sounds like a big hassle, it is. Frank Fantozzi tells his clients at Planned Financial Services in Cleveland that unless they’re buying multiple properties, they should diversify into real estate through publicly traded real estate investment trusts (now yielding 3.5% to 5.5%) or less liquid nontraded REITs (now yielding 5% to 7%).
Still, direct investment in property offers the biggest potential returns. Buy at the right price in the right market and you can earn a hefty 8% to 12% return, plus appreciation. “Buying a property directly, that’s where your biggest potential gains would come,” says Tim MicKey of Monument Wealth Management in Alexandria, Va. “But it’s also where your potential biggest losses could come.”