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Cash is still king.Cash is king because non-cash is a commoner and a loser...it’s losing its value. An article in yesterday’s Financial Times, for example, tells that: “US inflation expectations at lowest point in year.”
In other words, forget inflation. Forget price increases. It’s cash...cash...cash. cvCash on the barrel...cash in hand...cash and carry. You got cash? You da king!vcPeople expect cash to be more valuable. And if we’re right...it will be more valuable.vStocks, for example, fell yesterday. The Dow dropped 179 points.vAnd gold. It lost $34.
Another article in yesterday’s financial press told us that “it’s a great real estate market...if you’re rich.”
Why? Because the rich have cash. They’re the kings, queens and jokers too. And now they can use cash to buy other assets at a discount. They get more for their money. When inflation subsides so do prices. And nowhere have they ebbed more than in the real estate market. A friend sent us an investment opportunity...a 12-unit apartment building in Florida, a block from the beach. What does something like that go for? Well, in the glory days of the bubble in real estate, it might have sold for $3 million. Today, it’s available for $750,000 — with owner financing at 5%.Let’s see...if you can get $800 per unit per month...whoa...this could be a good deal. Because you can probably cover the cost of operating and maintenance and still get better than a 5% yield. If that is true, over time, you get the building for free.
But the problem with real estate is that every deal is different. Every toilet backs up in its own unique way...and every roof leaks in a different spot. If you don’t know what you’re doing...don’t do your homework...and can’t manage a property, including collecting the rent from people who don’t have much money, you probably won’t do very well.
Here at The Daily Reckoning we prefer the public markets, where the tenants don’t give you hard-luck stories and the paint doesn’t peel. But what we see in the public markets is a lot worse than what we see in the real estate market. Where can you get a yield of 5% outside of housing?
All over the investment world — except for US government debt — yields will probably go up. Cash in king. But cash is probably going to become even more powerful. In real estate, for example, the bad news is not yet fully priced-in. People assume that prices will hit a bottom and then begin going back up again. They figure they just need to buy at the right time and all will be well. But as we keep pointing out, markets are more like cats than like dogs. They play with their prey...killing them slowly while having some fun at it.
Real estate has already been whacked hard. It’s down 30% to 50% depending on where you look. But is that all there is? Is that the end of it? We don’t think so. The trends that worked so happily together to boost real estate to bubble levels have now become surly and uncooperative.

*Household income is going down, for example. It is almost back to 1990 levels, erasing 20 years of gains. Who wants to ‘move up’ the real estate ladder when his income is going down?

*And the rate of new household formation is going down. Instead of setting up new households of their own, the young...and not so young...are moving back in with mom and dad. The unemployment rate for young people is 20% — near Great Depression levels.

*Population pressure is easing. The rate of immigration, for example, is also going down. There are reports of illegal immigrants returning home in such numbers that there are now more leaving than coming. Besides, with so few jobs opening up, who wants to go to all the trouble to sneak into the country?

*Most important, the Great Correction is far from over. We’re expecting a long period of stagnation, de-leveraging and depression. Prices don’t go up in a credit contraction. They go down. What we’ve seen so far is probably just the beginning of a long trend that will probably take prices down another 50%.

But wait, we know what you’re thinking. At today’s levels, houses in America are not over-priced. They’re about in line with the very long term trend. They’re about where they should be. And at today’s ultra-low interest rates — mortgages are below 4% — housing is a good deal.
Maybe so. But Mr. Market doesn’t care. Just as he didn’t mind pushing up prices to dizzying heights he also doesn’t mind pushing them down to dreary lows. He’s an equal-opportunity deceiver. First, he made people think that housing always goes up. Now, he’ll make them think that it always goes down. And when he’s finished, you’ll be able to buy a house for about half today’s price.
Of course, then...you won’t want to. Because you will have learned an important lesson that you can pass on to your children: ‘Don’t buy a house. Rent. It’s cheaper.’ Then, perhaps house prices will begin to rise again. In the meantime...and perhaps for a long time...cash is king.

Bill Bonner-The Daily Reckoning

9-24-11

Rental Market To Grow

http://www.inman.com/opinion/guest-perspective/2011/09/22/the-new-real-estate-boom-rentals

8-29-2011

Short Sale Primer

What's A Short Sale? A short sale is a technique to help homeowners avoid foreclosure on their home. It is an arrangement between the homeowner and the mortgage company in which the mortgage company agrees to accept less than the amount owed on the home.

With unemployment or under-employment, many homeowners cannot make their house payments. Divorce, job transfer and illness contribute to owners not being able to pay back or afford their mortgage payments. In some cases people who find themselves under financial hardship choose a short sale to help stabilize their financial situation.

One of the great things about a short sale, from the outside looking in, is that it appears to be a regular sale. A normal for sale sign, not a foreclosure or bank owned sign, is placed in the front yard. If you are living in the home at the time the short sale is initiated, you can usually remain in the home through the negotiations and closing. You move out of the home and the buyer moves in after the deed records. The closing costs and real estate commissions are paid by the lender who holds your mortgage. The homeowner pays nothing.

How does it work? Here are the steps to begin a short sale: The real estate agent does a market survey of what homes in the neighborhood are selling for. The home is priced at market value regardless of the amount of the mortgage on the home. The home is listed for sale and a buyer submits an offer on the property, which is usually many thousands of dollars less than what would be required to pay off the loan.

In this process, the seller would sign the purchase contract accepting the price; the offer would then be presented to the bank. The bank would review the offer and make a determination to accept the offer, counter it or deny the short sale. In most cases through negotiation, the banks will accept the short sale.

What information or documentation does my lender need from me? You will need to fill out a so-called Short Sale Package, which will include but is not limited to a hardship letter outlining why you are requesting a short sale; three months of bank statements; and two years of tax returns, plus an authorization letter giving your Realtor permission to talk to your lender and negotiate the sale.

If I am considering a short sale what should I do next? It is always advised you seek legal advice from an attorney and a CPA. You will want to know how the short sale may impact your tax return and get any questions on deficiency issues with the short sale, if applicable, and what that could mean for you.

Your Realtor usually can provide referrals if you do not know of an attorney or CPA. Most financial experts agree a short sale is much better than a foreclosure on your credit report. It may lessen the time you will need from the short sale to being able to purchase another home. Many lenders will pay relocation fees to homeowners, if they qualify, to do a short sale over a foreclosure. A short sale is a good way to decrease debt and get out from the burden of a mortgage that cannot be maintained month after month.

It is extremely important to work with a Realtor who is trained in the short sale process. It is time consuming and a great deal of negotiation goes on between the Realtor and the bank on behalf of the homeowner. It takes time and skill to close a short sale transaction from beginning to end.

8-22-2011

A series of numbers came out in the housing market last week, with housing starts below expectations, building permits off by 3%, and existing home sales a little below expectation but up strongly year over year. That’s all good and well, but the real number to watch is existing home median sale price… and that fell back to $174,000. This is more proof that real estate is still stuck in the mud.

8-16-2011

IRS's top 10 tax tips for home sellers

http://www.ratetake.com/news/2011-08-15-3.html

7-28-2011

1031 Exchanges

http://bangordailynews.com/2011/07/27/business/consider-real-estate-exchange-to-defer-taxes/

7-18-2011

How To Lease Commercial Space

http://blogs.forbes.com/jimblasingame/2011/07/18/lease-commercial-real-estate-part-i/

5-23-2011

Reassessing Real Estate Partnerships

http://www.adn.com/2010/07/24/1380197/retirees-should-reassess-their.html

5-1-2011

Valuing A Real Estate Investment

http://finance.yahoo.com/news/Valuing-A-Real-Estate-investopedia-3310397523.html?x=0&.v=4

Although I was able to follow the valuation methods for the most part, I want to stress that real estate investing is a cash flow business, especially in the market that we are in and will be in for the next 7 to 10+ years. Cash flow (before any tax and depreciation consequences) on a month-to-month, year-to-year should be the overriding factor in valuing a property. Equity appreciation should be considered a bonus if and when the time comes that you can sell the property and do it at a profit. Taking the time to consider the cost of money (ROR) http://efinancedirectory.com/articles/How_to_Calculate_the_Real_Rate_of_Return_on_Your_Investments.html will impact any equity gain (or loss) of the property. There are some “flippers” out there that will tell you that you can buy and sell quickly and at a profit with all the properties out there that people are trying to “give away”. My question to them is can you show me. I don’t want to see a hypothetical situation on paper but actual deals that have made it to closing with all the ROR calculation numbers disclosed. Of course there will be a few that have bought, repaired, carried, and then sold for a profit. But the fact is that considering the number of investors out there and the “flip deals” that have closed profitably, I have seen very few successful “flippers” since approx. 2007. Prior to that year (2001/2-2006/7 the majority of relevant parties (realtors, mortgage companies, banks, buyers, and sellers) were operating nothing more than a big ponzi scheme. Truth is that most properties are returning to there actual worth and most likely will continue to fall to actual “good deal” values unless the inventory and demographics change dramatically to the good of asset holders. The potential for rentals to be a good investment for the next 10-15 years requires a number of inputs and guesstimations. But it seems that the rental market is on solid ground due to the same factors that make home buying difficult and unattractive for the generation and immigrants behind the baby boomers. The topic of being a landlord in the current rental market is a story and challenge to explore in
another article.

4-8-2011

Good News for Spouses of Reverse Mortgage Holders

http://bucks.blogs.nytimes.com/2011/04/07/good-news-for-spouses-of-reverse-mortgage-holders/?ref=business

3-31-2011

America's Housing Market

http://www.economist.com/blogs/dailychart/2011/03/house_prices&fsrc=nwl

3-14-2011

Maintenance Tips For Landlords

Tending a property can be costly and time-consuming. Property owners often waste money when managing the maintenance of an apartment, home, or building. Here are four tips that serve as an introduction or refresher for conscientious property owners to save money and property values.

1. It is risky to allow tenants to do repairs themselves. Although it may seem simple to discount some money off their rent for making a repair, it exposes property owners to a potential risk. A property owner will be held responsible for paying medical bills and loss of income if someone is injured while hired to do work, and property owners do not have Workers' Compensation Insurance to cover themselves.

2. One can save a lot of money by getting multiple bids for a project instead of settling for the first one. Contractors can charge whatever they want, so it is important to shop around. In addition, it is often best to agree ahead of time on both an hourly rate and to pay cost for the supplies (time and materials) in order to get the best value from an ethical contractor.

3. Property owners should not wait until something goes wrong to do maintenance. Having an "If it's not broken, why fix it?" mentality may save money now, but may both lower property value and cost more in the end. Plus, rent for buildings that have areas in apparent need of improvement tends to be lower, and tenants are likely to move if their landlord defers maintenance or does not respond quickly to service requests.

4. It is important to be mindful of how much money is actually saved when personally performing repairs. Indeed, property owners with the proper skills can save a significant amount of money on labor by doing the maintenance themselves; however, the job must be completed quickly and proficiently in order to save enough money to make it worthwhile. Property owners should remember that although a slow maintenance job may save money in labor expenses, it might be negated by the weeks of rent lost due to the vacancy.

3-2-2011

Commercial Real Estate Vacancy Rates to Decline but Rent Recovery Delayed

http://www.realtor.org/press_room/news_releases/2011/02/commercial_rates

2-7-2011

Neighborhood Information

http://www5.onboardnavigator.com

2-2-2011

Mortgage Relief for Distressed Homeowners

To help the millions of homeowners whose Federal Housing Administration (FHA) mortgages are threatened by foreclosure, the FHA established the Home Affordable Modification Option, or FHA-HAMP. Homeowners approved for this program could have their monthly mortgage payments reduced significantly.

Homeowners may only apply for FHA-HAMP once. And although they are not required to have equity in their homes, to be eligible for the FHA-HAMP mortgage payment reduction, homeowners must:

Reside in the properties they own.
Have a mortgage that is at least one year old.
Have made at least four mortgage payments.
Have mortgage payments (including taxes, insurance and homeowners/condo fees) that exceed 31 percent of their gross income before deductions.
Be delinquent on their mortgage payments by at least one month.
Have an unpaid principal on their home that is less than $729,500 ($934,200 for two units; $1,129,250 for three units and $1,403,400 for four units—The Department of Housing and Urban Development, which works with the FHA, defines a unit as “a habitable living unit added to, created within, or detached from a single-family dwelling that provides the basic requirements for living, sleeping, eating, cooking, and sanitation,” such as a mother-in-law suite).
Other requirements and considerations—such as the amount of the monthly mortgage payment in relation to the applicant’s debt ratio—may need to be satisfied before a mortgage reduction can be approved. For instance, a homeowner applying for FHA-HAMP must have a cumulative debt, including second mortgages, credit cards, car loans and leases and any other installment or revolving accounts, that is no more than 55 percent of his or her household’s monthly gross income.

To determine eligibility or to apply for the FHA-HAMP, homeowners should contact their existing lenders or the U.S. Department of Housing and Urban Development’s National Servicing Center at (888) 297-8685. Applicants will be asked to provide proof of income, a hardship letter explaining the circumstances of their financial difficulties and a list of monthly expenses with supporting documentation. To avoid scams, homeowners are reminded that HUD’s counseling services are free and are cautioned not to pay anyone to prepare their intake packages or applications.

Feb 2, 2011

Real Estate Buy and Hold Strategy

http://www.biggerpockets.com/renewsblog/2011/02/01/real-estate-buy-and-hold-strategy/

Dec 13, 2010

Careers in Real Estate

http://ceogroups.net/2010/12/types-of-real-estate-careers-2/

Dec 9, 2010

10 Tips For New Real Estate Investors

http://www.suite101.com/content/0-tips-for-new-real-estate-investors-a318425

Nov 17, 2010

5 Reasons You Should Use A Real Estate Profesional

http://www.realtor.com/blogs/2010/11/16/5-reasons-you-should-use-a-real-estate-professional/