Your Ad Here
Your Ad Here

Real Estate: How Far

There is one big question looming for homeowners and commercial real-estate investors this year: How much worse will it get?

The past year was the most painful in decades for residential real estate, as defaults on loans to less-creditworthy borrowers created a broader credit squeeze. House prices fell, home ownership dropped, foreclosures soared, and the housing market emerged as the soft underbelly of the economy.

Commercial real estate hit its peak early in 2007, when private-equity firm Blackstone Group LP paid $23 billion for office giant Equity Office Properties Trust, and then did an about-face. As credit tightened throughout the economy, commercial-property values tilted downward for the first time in several years.

Housing prices are likely to slide further this year, as credit remains tight and interest rates on many mortgages are set to rise, or "reset," and could trigger more defaults.

The commercial real-estate market, which includes properties such as offices, apartment buildings and shopping centers, could continue to soften as slower economic expansion causes rents to rise more slowly than in the past.

Residential Blues

Relief from the housing woes is unlikely anytime soon. "It will be another very bleak year with the worst of it occurring in the first half," predicts Mark Zandi, chief economist at economic-research site Moody's "Inventory is only growing and needs to be worked off before the market finds some stability," he said.

Through the third quarter of 2007, slightly more than 2.5% of all houses, or more than two million, were for sale and vacant, according to the U.S. Census Bureau. Since the first records were kept in 1965, that figure had never been higher than 2%, until the fourth quarter of 2005.

Demand is likely to stay depressed, keeping prices low, as high-risk borrowers who in the past would have qualified for subprime loans find themselves locked out of the market. Borrowers with little, if any, money for a down payment and those who don't want to document their finances also are likely to find the going tough.

House prices have fallen 6.5% as of October, since peaking in June 2006, according to the S&P/Case-Shiller Home Price index, which measures home values in 20 cities. Daniel Mudd, chief executive of government-sponsored mortgage investor Fannie Mae, expects prices to decline another 4% to 5% in 2008.

Among the hardest hit residential markets is Florida, where thousands of high-rise condominiums under construction are expected to be completed in 2008. Although buyers put deposits on many of those units during the housing boom, developers worry that the drop in property values and credit tightening will cause buyers to renege.

"People won't answer the bell to close," said Lewis Freeman, a Miami bankruptcy consultant who said he is busy with failed condo projects. If enough buyers fail to close, entire projects could be sent into default on construction loans.

This year will be difficult for home builders faced with slow sales. In November, Levitt Corp.'s Levitt & Sons unit filed for bankruptcy-court protection. Tousa Inc., of Hollywood, Fla., said it is considering several "in- and out-of-court restructuring and reorganization" options, including a possible Chapter 11 bankruptcy filing.

Mr. Zandi's models predict a bottom to the housing market sometime in 2008, but only if the economy stays relatively strong. "If it slides into broad-based recession, it won't be until the end of the decade that the market finds a bottom," he said.

Commercial Cracks

Optimism about commercial real estate is tempered by the credit crunch and a slowly expanding economy.

"Rent increases will continue to slow over 2008, as we face weaker demand and slower growth in the broader economy and jobs," said Sam Chandan, chief economist at Reis Inc., a property-research firm based in New York.

About 15% of property investors expect prices for office buildings to rise, according to a survey by real-estate services firm Marcus & Millichap Real Estate Investment Services Inc., of Encino, Calif. Two years ago, 39% of property investors expected price increases.

In 2007, Blackstone's acquisition of Equity Office marked the high point of the commercial real-estate market. The $23 billion deal was the largest real-estate transaction ever in dollar terms. Blackstone quickly turned around and sold many of the properties at prices so high that buyers weren't likely to see big first-year returns on their investment.
he frenzied deal making came to symbolize the frothy valuations investors were paying for commercial real estate.

Moody's Investors Service, a subsidiary of Moody's Corp., in April said lenders' underwriting standards had become too lax during the run-up in prices. The warning scared investors and led bankers to raise interest rates and require borrowers to pour more of their own money into deals.

The change in the credit markets deflated commercial-property values. At the end of May, Tishman Speyer Properties, along with Lehman Brothers Holdings Inc., announced they would buy Archstone-Smith Trust, one of the largest apartment-building companies in terms of market capitalization, for $15.2 billion. Before the deal was announced, Tishman Speyer and Lehman had lowered their bidding price, citing credit markets and unforeseen tax issues.

Rents and occupancy rates -- the fundamentals of real-estate values -- are expected to stay relatively firm in 2008. Mr. Chandan predicts landlords will be able to charge 6.2% more for office space this year. In 2007, rents increased 10.4%.

Any downturn in commercial real estate will be different from the past, said Harvey Green, chief executive of Marcus & Millichap, because unlike the residential market, there has been relatively moderate production of new supply.

"We haven't been in a long cycle of rent growth to justify that much new construction," said Mr. Green.

Tips for Buying

Johnna: In good markets and bad, real-estate agents are constantly announcing that "now" is the best time to buy. With housing prices weakening, inventories rising and sales slumping, this attitude has drawn a lot of ridicule in the press.
But you know what? Now may actually be a very good time to buy, or at least start looking seriously.

Though no one can really tell when the downward-trending housing market will reach its nadir -- most economists predict it will bottom out sometime in 2008 or 2009 -- there's no doubt that sellers have let go of bubblelicious notions of what their homes are worth. According to S&P/Case-Shiller, existing home prices dropped 4.5% nationally in the third quarter over the year before; price appreciation was even slowing in Charlotte, one of the few cities that the research group covers that showed price appreciation year-over-year. It rose at a tepid rate of 4.7%.

The media makes this out as a tragedy, but it's really not. For buyers, a market that's nearing its bottom is only a concern for flippers, who need a rising market to make money. For buyers making a long-term investment, it's a reason to rejoice.

Yes, loans are hard to find, but they are still being made, especially if you have good credit. While the qualifications for getting a loan are becoming stricter -- but no more strict than they were in the mid-1990s -- mortgage money is still cheap by historical standards and will likely remain so in the near future. The Mortgage Bankers Association projects that 30-year fixed rates will hover around 6% throughout 2008 and the first two quarters of 2009.

Meanwhile, as you have noted, bargains abound, particularly in foreclosure properties. While many Web sites sell foreclosure information (sometimes after letting you sample the Web site for a week-long free trial), you don't have to pay an online membership fee to find them. Title companies, real-estate agents and lenders -- including credit unions -- all have information on homes in various stages of foreclosure.

Homes that are being auctioned are listed in the legal notices section of the main local newspaper and can usually be found on the newspaper's Web site.

But generally, you will get a better deal if you buy a house before it goes to auction, or after -- if it doesn't sell on the courthouse steps. Bidders at an auction sometimes get caught in the heat of the moment and push up prices.

For a simple and up-to-date explanation of the foreclosure process, you may want to read "Finding Foreclosures" by real-estate investor Danielle Babb and mortgage broker Bill Nazur (Entrepreneur Press; 2007). But keep in mind that the book was prepared with RealtyTrac, an online database of foreclosure and pre-foreclosure properties, and promotes that Web site heavily.

Mortgage Down Payment - How Much Money For Down Payment?

deally, you would purchase your house with a 20 percent mortgage down payment, closing costs equal to about 3% to 5% of the purchase price, and enough left in your checking account to cover two or three months of monthly housing expenses. That starts you out with lots of equity in your house upfront and makes the lender happy as a result of your large mortgage down payment -- something that usually translates into a better deal. The trouble with this mortgage down payment plan is coming up with that much cash is too much to ask from many first-time buyers. After all, we're talking $40,000 mortgage down payment on a $150,000 loan or $70,000 on a $250,000 mortgage.

The good news is that lenders over the last couple of years have become increasingly willing to finance as much as 95% or even 97% of a home purchase. The reason: They can now unload the risk of such loans onto somebody else. To limit their exposure, many lenders regularly sell their loans to the Federal National Mortgage Association (Fannie Mae), which then bundles them into securities which are eventually sold to investors. It used to be that Fannie Mae only would buy loans for 80% financing. But it recently standardized the lending criteria for 97% financing and will now buy these loans, making lenders much more willing to provide them to you with less mortgage down payment. It's now common for first-time buyers to put down only 5% mortgage down payment, or $7,500 on a $150,000 loan.

While this sounds enticing, remember that small mortgage down payments have their price. First of all, you start with very little equity in your home. Also, if you don't have 20% to put towards you mortgage down payment, you'll probably have to ante up for mortgage insurance which protects the bank against default and can top $1,000 a year if you put 5% down on a $200,000 loan. Mortgage insurance rates are fairly standard but rates for adjustable rate loans and alternative credit can be much higher than a good credit fixed rate loan.

If you are buying in an urban area or have low to moderate income, look into programs offered by your city or state that provide below-market loans with little or no mortgage down payment required. If you're really cash-strapped, you can get 100% financing by "piggy-backing" a second loan equal to 20% of the purchase price on top of your 80% loan. But that 20% second mortgage will come at a much higher rate.

Make Money Flipping Real Estate - Which Way?

You can certainly make money flipping real estate in more than two ways. However, when it comes to actually repairing and improving a house to sell it, there are two essentially different approaches. The first is to do as much of the work yourself as you can. The other approach is to simply manage the project while others do all the physical labor.

Many investors will tell you that your time should be spent finding and managing properties, not raking leaves or painting or hammering nails. Doing the work on the house means you have bought yourself a job, they will tell you, rather than an investment. I tend to agree, but nothing is that simple. There are good reasons for either approach and you can make money flipping real estate either way.

Make Money Doing It Yourself

Do you make more or less money when you do your own work on that fixer upper? That depends on how you look at it. It is true that you might make more money on a given project. After all, if it costs $2,000 in labor for roofing, and you do it yourself, you should make $2,000 more profit - at least if you do it as fast as the professionals would have done it (there are holding costs to pay if the project is delayed). On the other hand, if you do a lot of the work yourself, you might be able to flip just a couple houses a year, rather than the dozen you could do if you paid for all the labor.

When you do it yourself, however, you do get a bigger margin of safety. (I should say you CAN get a bigger margin of safety, because those of us that aren't as skilled in the building trades might screw things up and have to hire a professional anyhow.) On a project that would yield a $20,000 profit after paying for all labor, you might save $8,000 by doing much of the work yourself. This can mean more profit, but it also means that if there are unexpected expenses or you guessed wrong on what the house would sell for, you are less likely to lose money.

Another factor to consider is your cash situation. If you are tight on cash, and you don't want to bring in other investors or you can't borrow enough money, you can get by with less by doing a lot of the work on your own. In fact, one way to do your first flip is to live in the home while you fix it. This makes it easier to get financing, and if you stay there two years before selling, you don't have to pay taxes on the profit.

Make More Money Flipping Real Estate As A Business

Handled like a business, there is no doubt that you have the opportunity to make more money. A friend of mine flipped fourteen houses in one year, something he never could have done if he had been painting the homes or laying tiles in them. He never lifted a hammer. He made it clear that he thought his time was better spent finding the next deal, while his crew finished the houses that he had at the moment.

The Choice

Which is the better approach then? It depends. Of course there is more money to be made finding deals than hammering nails. But what if you need a safe small deal to get started? What if you are short on cash and ability to borrow? What if you just enjoy the process of fixing up a home?

Those are all good reasons to consider doing the work yourself, or at least part of it. There is no absolute right way to make money flipping real estate. Often investors learn a lot by getting involved with the repairs and improvements. This could mean you'll save money and make better decisions later, when you are managing projects or finding deals. The choice is yours.

111 Home Appreciation and Capital Gains

The last seven years has seen tremendous appreciation in home prices. This brings up the issue of home capital gains tax issues for people when they sell.

Home Appreciation and Capital Gains

Owning home is considered part of the American Dream. Unless you are extremely unlucky, homeownership leads to tremendous wealth building. You simply sit in your home, make the monthly payment and reap the benefits of appreciation and increased equity. A bit of the luster, however, can be lost when it comes time to sell.

Capital gains taxes are the problem. The federal government encourages homeownership, but also wants a chunk of a change when you sell. The capital gains tax is a percentage of the profit you have realized from the home, to wit, the difference between the price you purchased it at and the price it is sold. You can deduct mortgage costs, improvements and so on, but there is still the tax.

Fortunately, there are some large safe harbor exemptions to the home capital gains tax. If you are single, you can exclude the first $250,000 in profit from being taxed. If you are married and filing jointly, you can merge your individual exemptions and protect the first $500,000 from being taxed. In most parts of the country, these exemptions will completely protect you from home capital gains tax. Even if they don't, the tax savings should be substantial.

To claim the exemptions, you must meet a few requirements. Obviously, you have to actually own the home. You must also have lived in the home two out of the previous five years. It must have been two years since you tried to claim the exemption on any other home. Put another way, you cannot claim the exemptions for investment property or second homes. Still, these healthy exemptions are a windfall for most homeowners.

Americans are notorious for being horrific savers when it comes to financial planning. Homeownership provides a relatively straightforward savings method and the government promotes it as such by providing these large home capital gains tax exemptions. If you can pull it off, buying a home is one of the smartest moves you will ever make.

What Is “The Secret” To Finding Real Wealth?

id you know that less than one percent of the people currently living on this planet account for almost twenty-five percent of ALL the wealth? These powerful people certainly don’t want you to know this...they want you to stay as mindless drones whose sole objective is to keep THEM wealthy. What is the secret this small fraction of the population knows that the rest do not?

If you haven't seen the movie "The Secret", I implore you to watch it! The Secret is the most powerful law in the universe! If you have already seen it, watch it again. To watch "The Secret" online, copy and paste this url into your browser;

Or you can watch "The Secret" On Demand via cable and satellite for audiences in the United States and Canada.

This small minority of people who are currently pulling the strings on world politics and world economics have mastered The Secret. These are the same people who want The Secret banned like it was once banned hundreds of years ago. Now The Secret has been un-earthed for all to discover its tremendous power once again!

There also have been great leaders who have mastered The Secret and made positive contributions to all of humanity. Leaders like Albert Einstein, Abe Lincoln, and Mother Teresa to name a few.

We are now living in an exciting new age of technology where humanity can do incredible things. The brick and mortar corporations who once ruled our economy unequivocally over the little guy are slowly losing their death grip due to the astonishing power of the internet!

So what is this secret you ask? In a sentence; "The Secret Is The Law Of Attraction". Simply stated, you get what you wish for...or your thoughts dictate what you get in life. Your health is dictated by your thoughts as well as your wealth.

Think of your thoughts as little tiny magnets...the intensity of these tiny magnets or thoughts are in direct proportion to the emotions you attach to it. The stronger the magnet, the stronger the attraction. This explains why a lot of people don't get what they wish for. They have not attached a strong enough emotion to their dream. Or they feel they don’t deserve their dream so they don’t bother pursuing it.

Let me give you an example of how the law of attraction works in a negative way. Think of the days when you got started off the wrong foot, then said to yourself "this is gonna be a long and terrible day". What happened? A long and terrible got what you wished for! The degree of how terrible your day turned out was proportional to the intensity of the negative emotion you attached to the thought, right?

So how do these little "magnets" or thoughts attract what we want or don't want in our lives you ask? Well, and this is based on quantum physics that scientists have just learned in the last 10 or 15 years. There is an invisible universal mind if you will that contains all the dreams and thoughts of everyone who has ever lived or will live...past...present...future. This is quite the paradox you may think, how can this be?

The "time" element in this universal mind has been negated or altered. Quantum physics has recently shown us that a single electron can occupy two different spaces in an electro-magnetic field at the same exact point in time, once thought impossible. This goes against the laws of physics unless time has been negated or altered some how, the only possible explanation. So you may be able to connect with the dreams of someone who hasn't been born yet. Are you getting excited yet?

The Universal Mind is a sort of collective consciousness. The place where dreams are born. These dreams are invisible and waiting to take physical form.

How do you convert your dreams from the universal mind to the physical realm? By constantly thinking about your dreams with strong emotions and just as importantly - taking action! I am NOT talking about wishful thinking must take action on your dreams!

It helps to have pictures of your dreams and look at them every day. Write your dreams down. Formulate a plan that is specific and with deadlines that will bring your dreams to fruition...and stay the course! “Don’t die with your dreams still inside you” as Dr. Wayne Dyer likes to say.

That is why I firmly believe you should pursue ventures you have a passion for...then you will find it easier to attach strong positive emotions to your thoughts and dreams.

This is the most powerful law in the universe, use it wisely my liege...

Good Luck and Stay the Course!


My Blog List