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

An 'Outside the Box' Buyer

by Carla Hill

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 www.hud.gov 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.

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

06/07/2012BY: ESTHER CHO

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.

The Advantages of Pre-approval

The Advantages of Preapproval

The New York Times

By VICKIE ELMER

Published: June 7, 2012

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
.

A version of this article appeared in print on June 10, 2012, on page RE7 of the New York edition with the headline: Advantages of 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.

The Best Ways To Profit From Distressed Housing

see photosJason Grow for forbes

Click for full photo gallery: 12 Must-Know Tips Before Becoming A Landlord

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 onZillow.com, 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 fiancée 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.

Video: Getting Rich In Real Estate

Investors Flock To Housing, Looking To Buy Thousands Of Homes In BulkMorgan BrennanForbes Staff

Farm Like A Billionaire--Harvest Tax BreaksAshlea EbelingForbes Staff

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.

Video: Getting Rich In Real Estate

Investors Flock To Housing, Looking To Buy Thousands Of Homes In BulkMorgan BrennanForbes Staff

Farm Like A Billionaire--Harvest Tax BreaksAshlea EbelingForbes Staff

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.”

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