The price difference between various real estate markets is what many people try to profit from. I call this the spread. For example, Manhattan residential real estate prices are roughly $1000 a square foot. Downtown Jersey City and other equivalent outlying urban areas of Manhattan, such as Brooklyn Heights and Park Slope, might be $600 a square foot. That makes the spread between those markets about $400 ($1000 less $600) a square foot.
Bond traders or people that trade stocks look for or observe price spreads. Bond traders refer to the spread in basis point and in yield to maturity. So if a corporate bond yields 8% and an equivalent term US treasury bond yields 6%, then they would say that corporate bonds trade at a spread of 200 basis points or 2% (8% - 6%) to US treasuries.
In real estate people reach out to more far reaching real estate markets in the hope that those markets may mature or improve and that the price may rise closing the spread between that market and another.
Example: Brooklyn Heights versus Downtown Jersey City.
In Brooklyn Heights versus Downtown Jersey City, I observed there to be a significant price spread. The selling price per square foot for housing in some comparable neighborhoods of Brooklyn Heights can be significantly higher than in Downtown Jersey City.
Recently I previewed several properties in Brooklyn Heights selling for about $750 a square. Since Downtown Jersey City is at about $550 per square foot, then this would imply a spread per square foot of $200 ($750 - $550) between Downtown Jersey City and Brooklyn Heights.
I am looking for those spreads to narrow. A lot of development is transpiring in Downtown Jersey City. This will probably keep prices down in the near term (next couple of years) as a lot of inventory comes on the market and requires market absorption. However beyond the next couple of years as Downtown Jersey City improves, I believe those spreads will narrow.
As larger developers further their projects and advertise their projects on an international level, more attention should be brought to bear on Downtown Jersey City. I speculate that Donald Trump has every intention of marketing his Trump Jersey City beyond the local markets. Plus let’s not forget about the new $130 million dollar international golf course over at Liberty State Park. This is all free advertising on the coat tails of these projects and I further speculate that these projects will bring international attention to Downtown Jersey City.
So expect to see some price spread movements between the above mentioned markets over the next ten years. Although there is no guarantee that the spreads will narrow, I speculate (based on the above circumstances) that the probabilities point to the spreads narrowing rather than widening.
Link: www.RealEstate-Calc.com
Friday 23 November 2007
Real Estate Markets and Their Price Spreads
Brokers or Lenders — Which Do You Want for Your Real Estate Mortgage?
A mortgage is a mortgage is a mortgage. NOT! Not only do mortgages differ between lenders, but they also differ greatly by the lenders, themselves. There are two types of real estate originators — brokers and loan officers.
Brokers generally are self-employed professionals, who work to secure a real estate loan for you. They work through a variety of lenders and earn a fee for the transaction. Most of the mortgage lenders who advertise on the Internet are brokers.
Loan officers are employees of a bank, credit union, or other lending institution, such as a mortgage company. They sell and process mortgages and other loans only for their employers. They are usually local and in a physical location.
There are advantages and disadvantages in using both brokers and loan officers for your real estate purchase, so you need to shop for the one that is right for you and your particular circumstance.
Brokers
The advantages to using a mortgage broker for your real estate purchase are many. Usually, the better deal they get for you, the buyer, the more they are paid on the transaction — a big plus for you. If your local bank, mortgage company, or credit union has refused you a loan, a mortgage broker may be able to find a lender, even if you have bad credit — just expect to pay a higher interest rate. If your real estate is unique or commercial property, using a mortgage broker to secure a loan is at times easier and faster.
One downside of using a mortgage broker is that your mortgage loan will be sold to another lender immediately after closing. Another is that brokers choose to do either non-conforming loans, which are higher risk and usually higher interest rates, or conforming loans. This limits your loan options. Brokers do not have to disclose a “good faith” estimate on what closing costs will be, nor are they regulated by the Fair Credit Act. Additionally, they seldom have a physical office with employees offering you face-to-face customer service, and they generally are in another town or state than where your real estate is located. This means they may not understand the local market in which you purchased your real estate. Important issues may arise from the real estate classifications and terms used by your appraiser, for example.
Loan Officers
Though loan officers offer a variety in the types of loans available, you are limited to only those products offered by one institution. Usually a local institution, the loan officer will be familiar with all local regulations and issues will not arise over lack of knowledge in local market terminology.
Banks and Mortgage Companies
Bank and mortgage company loan officers will give you face-to-face customer services, at least before the closing. Like brokers, banks have the option of selling real estate loans on the secondary market. Some banks sell only low-end mortgages or those that require too much servicing with little return. Some sell the loan but keep the servicing portion, making it appear that your mortgage continues to be owned by the bank or mortgage company. They are required, however, to tell you during the initial paperwork if your mortgage may be sold. I suggest you ask before you ever get to that point, if this is a deal breaker for you.
Bank and mortgage company loan officers are licensed and must meet certain criteria. They have more criteria that you must meet, as well, in order to secure a loan (banks usually require the most). Many real estate buyers are refused mortgage loans by these institutions. Both banks and mortgage companies generally do offer better rates and terms. They also must disclose a good faith estimate on what closing costs will be, and they are regulated and audited under the Fair Credit Act.
Credit Unions
You must be a member of a credit union to apply for a loan with them. Many credit unions do not offer real estate loans. The major advantage of securing a loan from a credit union is that they pass on only actual costs of the loan to you — no broker fees or commissions. They also never sell their loans on the secondary market, they always are local, and give you continuing face-to-face customer service.
What to Do
The time to begin looking for a mortgage lender is before you begin looking at real estate. Ask family and friends for referrals, as well as their experience with the real estate lender. Ask your real estate agent for referrals. Then, contact each prospective lender and ask questions — lots of questions! Compare interest rates, terms, after the closing mortgage sale policies, and what criteria do they require that you meet in order to qualify for a real estate loan.
If you are a residential real estate buyer, consider getting pre-approved for a loan. You will know exactly what you can afford to buy, which usually turns out to be much more than you expect.
Spend as much time shopping for a mortgage lender as you will for your real estate. The deal you get can save or cost you thousands or even millions over the life of the mortgage. Get the best deal possible, as well as the right lender for your real estate purchase.
About the Author: John Harris is an expert researcher and writer on real estate topics such as economics, credit improvement tips, home selling advice and home buying preparations. For more on San Diego Homes for Sale visit www.twtrealestate.com
The Difference Between a Real Estate License and Broker License
You've decided that you want to get your real estate license. You've heard of a broker license too. What is the difference between these two real estate professions? Unless you've been involved in a real estate transaction or are familiar with the careers, you might not know the exact differences.
If you want to pursue your real estate license, you should thoroughly understand the similarities and differences.
All states require that real estate sales professionals, including salespersons and brokers, be licensed by that state. Brokers will generally be required to complete more real estate education and experience than a salesperson.
A real estate agent is usually an independent contractor who provides his or her services to a licensed real estate broker on a contract basis. In return, the real estate broker pays the salesperson a portion of the commission earned from the agent's sale of the property.
Real Estate Salesperson - An individual who can show property for sale on behalf of a seller, but who may not have a license to transact the sale and collect the sales commission.
* Assist sellers in marketing their property and selling it for the highest price.
* Assist buyers in purchasing suitable property for the best possible price.
* Acts as an intermediary between the buyer and seller.
Real Estate Broker - A person licensed by his or her particular state to charge a fee for bringing a buyer and a seller together to purchase real estate.
* Assist sellers in marketing their property and selling it for the highest price.
* Assist buyers in purchasing suitable property for the best possible price.
* Acts as an intermediary between the buyer and seller.
* Buys and sells real estate for a company or individual on a commission basis.
Real estate salespersons and brokers perform many of the same duties including: obtaining listings, determining sales price; showing properties; assisting with financing; selling property; overseeing inspections, and more.
The state examination, which is more comprehensive for a real estate broker than an agent, includes questions on real estate transactions and laws affecting the sale of property. Most states require that a real estate salesperson complete between 30 and 90 hours of instruction. A real estate broker needs between 60 and 90 hours of real estate education and a specific amount of experience selling real estate (usually 1 to 3 years).
http://www.realestatelicense.com
Ever Met A Real Estate Agent you Could Trust?
The only time a real estate agent tells the truth is when he calls another
real estate agent a liar! Real Estate has a bad name and it's not always
deserved but it's pretty unusual for a week to go past when you don't see
some type of property scam or similar all over the current affairs news. More
often than not it's the work of the bad few that tarnish the industry as a
whole, in practice selling real estate can be a thankless task and agents can
grind long hours for little reward! There are alternatives for those who are
willing to take on the role of the agent when they decide to sell their own
property.
If your selling property why not pocket the expensive commission you would
normally pay the agent? Why not use a good
FSBO website? Properties are selling
online from free real estate sites
every single day. The question is are we seeing a shift in the role of agents in
the traditional real estate transaction? Are you the type of person who can
handle selling your own property with confidence?
If your prepared to try using an online service you stand to save thousands
in commissions and marketing fees which gives you more scope to negotiate price,
terms and conditions with potential buyers. Your also representing your own
product with the greater product knowledge than an agent is likely to have.
Owners are better positioned to look after their own interests, often agents
will play buyers and sellers off against each other with their own financial
interests central to the transaction, this is not an ideal situation for buyer
or seller. Agents have been known to pressure buyers into price reductions if
the property does not sell within a few weeks and often if the owner stands
their ground the agent may let the listing go cold and use the sellers
advertising to pull the "bait and switch" trick- selling other stock from
their portfolio. What many sellers don't often see realize is that they will
often pay for marketing their own property and at the same time they are
promoting the agents business for them. If you have ever wondered how agents can
afford a huge presence in the print media the answer lies in the sellers
marketing budget.
In some areas agents will get a commission or kickback on the
advertising budget paid to the agent by the owner! Agents can pick up at both
ends of the transaction at considerable cost to the seller, advertising
campaigns can and do run into thousands of dollars even if the property does not
sell! In a hot real estate market it makes a lot of sense to do it your
self! With a little market research a home owner can quickly educate themselves
in the local market conditions and preferred marketing methods of the local
agents, locate a good for sale by owner
website online, take some digital photos and get started! The internet can
deliver a lot of information to a potential buyer and even act as a conduit for
price negotiation if your not comfortable doing face to face negotiation
yourself. You can find real estate
selling advice and tips online, general promotion and marketing advice,
advice on getting your home ready for an open inspection day and then advice on
selling, negotiating price and contract terms and conditions.
Agents will always have a place in many real estate transactions and will
always find ways to justify their existence. Unfortunately there is still a lot
of dishonesty and under the table kickbacks in the industry. Many agents will
pretty much say and do whatever it takes to get a listing then go to work on the
seller after they have an agreement to act, if you use an agent then do
your homework and try and get one on referral from a trusted source.
Increasingly people are using the internet to harness the resources to
sell property themselves,
sellers have little to loose and thousands of dollars to gain. They will have
total control and peace of mind knowing that they control the process from start
to finish. Check fastrealestate.net if your thinking of selling.
About the Author: Maxine Clark has been running fastrealestate since 2001
http://www.fastrealestate.net/
Tips to Sell in a Buyer's Market
The experts say that it is no longer a seller's market. This doesn't mean that it will be hard to sell, but you might need to make the extra effort to get your house to move faster. By completing a few easy steps, you should be able to get your house sold in the optimal amount of time.
1. Pick a realistic price. Buyers are learning to be more cautious when it comes to investing their money in a new home. With prices leveling off a bit, they want to know that they are making a wise choice. Be practical and choose a price that reflects the current market, not the market six months ago.
Tip: It is recommended that you list your price at or below the competitive market price. (e.g. If your neighbors are asking $400,000, list your home at $395,000 to generate interest.)
2. Go the extra mile. You can attract more buyers by providing an incentive. Gone are the days when people are willing to pay more for less. Buyers are going to be more cautious and sensible about their purchase. You can make them feel like they are getting a good deal.
Tip: You can offer to pay the buyer's closing costs as a perk of the sale. Or you can be flexible with the length of escrow and willing to fix items in the home inspection report.
3. Spruce up the place. Spending a little money to improve the appearance of your house can work magic when it comes to attracting a buyer.
Tip: Fix that wobbly doorknob, plant a new flowerbed, or put on a fresh coat of paint to give your house a fresh and new appearance.
4. Clean, clean, clean. Make sure your house is always clean and pleasing to the buyer. Remember that they are most likely going to be looking in closets, opening the oven door and peeking in showers. You want to show your house in the best possible light.
Tip: Polish the hardwood floors, clean the tile grout, scrub walls, dust high shelves to provide your house with a sparkly appearance.
These are not foolproof methods for a quick sale, but they can give you a leg up on the competition. It's important to show that you are keeping the buyer in mind and that you want to provide a fair sale. That can go far in today's real estate market.
http://www.realestatelicense.com
About the Author: Heather Brunson is a lead marketing writer for Allied Schools. She has a B.A. in Journalism with an emphasis on public relations. She has additional experience in technical writing.
Simple Online Revenue Models
Setting up an online business is nothing new, consider the amount of new
sites going live every day and you can be sure more than just a few of them
going to produce some type return on investment. You can increase the odds of a
positive return by selecting from a proven and simple revenue model such as
advertising banners on a
free dating site or using adsense and google on
a free realestate
site or selling a service such
SEO and development. Travel is another huge
online industry that returns commissions to website operators for traffic
referrals that convert to a booking or sale.
Retail has been established online for years now with sites like amazon.com
and the huge auction site ebay one of the biggest sites online. For the new
players to the online world there are many established sites to study and model
your web business on. Many of the hard lessons have already been learned and a
wealth of information is available for those willing to seek it out and benefit
from the experience of others.
Clearly you don't have to have an established business to make money online,
affiliate sales make up a huge percentage of online sales with many companies
becoming specialists in this lucrative field of online enterprise. Typically a
market and a product or service will be identified and the online affiliate will
source traffic
and funnel into their own website as a conduit to the main site. The customer is
tracked along the way via a code and any purchase is tracked and credited to the
affiliate who is in turn paid a pre determined percentage of that sale. It's a
very good system and there are thousands of niche industries now running
affiliate programs for the products and services they offer. In effect there is
something for almost everyone who has aspirations of selling to their online
audience.
Another popular method is paid banner placement on your site, you simply
charge an advertiser for the amount of impressions or click thrus on their
banner placed on your site. Selling impressions in my opinion is the least fair
with banner ads, click thru advertising represents better value for the
advertiser as they only pay when a customer has a genuine interest in the
product or service being advertised. I've been burned on impression advertising
before, the numbers sound impressive but if you have a product such as blue
widgets on a site where people are only looking for bright red widgets then sure
your going to get lots of impressions but not many clicks. The result is the
advertiser is not delivering value to the client and so the client only gets
caught once.
Adsense is googles way of giving back to the people! The adsense program
allows website owners to display google PPC ads on their sites and then pays
then an undisclosed percentage of the going click through price. I've heard of
some big cheques being written by google to their advertisers and some of the
high paying keyword industries can deliver impressive single click prices if you
have the right type of traffic. Examples include finance, medical, hosting, real
estate and travel. Be prepared to forever wonder exactly how much google is
actually making off your traffic if you adopt this model and always consider
going direct to the advertiser if you have enough traffic, you may in fact make
a lot more this way!
About the Author: Maxine Clark is an expert on the online dating
http://www.casualdate.com.au/sexy
and SEO http://www.moreclicks.com.au
industry and has been involved for 5 years keeping sites at the top of the
search engines.
Real Estate Investing Myths That Steal Profits From Your Pocket
One of the things that distresses me about our industry is the amount of wrong or incomplete information available to investors. Some myths block what otherwise would be a great deal, while others would have you believe that a bad deal is actually great. For example, we encourage purchasing homes “subject-to” the existing mortgage as an option to finance the purchase of an investment property. This means that title to the property is transferred to the purchaser, but the loan remains in the original borrower’s name with payments made by the purchaser. Unfortunately, many myths exist around this method which could rob you of your profits. Let’s take this opportunity to dispel 5 of the most common.
Myth #1: Buying A House “Subject-To” The Existing Mortgage Is Illegal.
Absolutely not true! Some states are attempting to pass legislation to regulate “subject-to purchases because of unscrupulous investors. Check with your local attorney to determine the status in your state because most still have no laws passed.
This myth has been around a lot longer than these new laws in a few states. The reason is that most mortgages have a “due-on-sale” clause which states that if the house is sold without paying off the mortgage, the lender has the “right” to call the entire loan due. The key here is that they have a “right” – not an “obligation”. In other words, it’s their choice. Before doing my first “subject-to” deal I asked several attorneys in town who represent lenders to see if they had ever heard of a bank call a loan due because of a sale. In every instance they said: not as long as the payments were made timely. Why? Because banks are in the money business – not in the real estate business. If they call the loan due, and it goes into foreclosure, they have a poor performing loan on the books (for which they have to increase their reserves), they incur additional costs, and they inherit a property. Their other choice is to just continue to accept timely payments from the new owner. Which makes more sense?
Note: This is only true when the mortgage holder is a bank. If the mortgage holder is a private individual, they may in fact prefer to have the house rather than timely payments.
Myth #2: Buying “Subject-To” Is Complicated And Requires A Ton Of Paperwork.
The truth is that all you have to do is write it into the Purchase and Sales Agreement (PSA). I write it in right next to the Purchase Price. Here’s an example using my PSA:
Total Purchase Price to be paid by Buyer is $80,000.00, payable as follows: “subject-to” existing first mortgage with Acme Finance with a balance of approximately $77,500, and monthly PITI payments of $695; remainder of Sellers equity to be paid in cash at closing.
That’s it. You and the Seller have now agreed that you’ll purchase the home subject-to their mortgage. As a precaution, I have the Seller sign a disclosure that they know and understand that the loan has a due-on-sale clause which the lending institution can invoke since the property is being sold. It also discloses that I make no promise as to when the loan will be paid in full, or how long it will remain in their name. I also prepare a letter from the borrower informing the bank that all future correspondence should be forwarded to me, and that I have the right to act for the Seller in every way regarding the loan so they’ll disclose loan information to me in the future.
It really is that easy. After closing, you just start making the payments. I don’t hide my identity from the bank. I send in my own checks, and the house insurance is in my comapny name.
Myth #3: No Homeowner Will Ever Sell Me Their House And Leave The Loan In Their Name.
If you’re dealing with a seller who has no problems with his house, this may be true. But when you deal with motivated sellers – ones that either have financial, personal, or house issues – this will not be an issue. Motivated sellers need a way out – quickly! Often, they’re already behind in their payments, and facing foreclosure. When you tell them that their worries are over, and you’ll catch up their back payments, and make all the subsequent payments on time they’ll jump at the opportunity. As a bonus, their credit will even improve.
The key to successful negotiating lies in your confidence. Realize that you’re providing a viable alternative solution which allows the highest price to be paid, with the quickest closing, and immediate relief for the Seller’s situation.
Myth #4: Kitchen Table Closings Are Perfect For These Transactions
Investors love to say that they “got the deed” at the kitchen table when they presented their offer. The concern is you have no validation of what you purchased. Without a title exam, there’s no guarantee the correct owner even signed the deed, nor whether any other loans or liens exist on the property. You also have no title insurance to protect you from any unanticipated title problems. Finally, the actual payoff on the loan must be validated with the lender by requesting a statement of account. Do not use the principal balance payoff shown on the monthly statement because it does not include past due payments, other interest accrued, fees and penalties, and any prepayment penalties. I have seen actual payoffs tens of thousands of dollars greater than the principal payoff.
You could argue that what difference does it make if the loan isn’t in your name and you gave the Seller no cash. The problem is that you may not discover any of these issues until much later in the transaction – maybe not until you try to sell the property. By then, you will have invested time, energy, and money in the property only to see it all lost, when all of these problems could have been avoided by conducting a standard closing with your attorney or title company.
Myth #5: I Can Always Just Walk Away If I Can’t Pay The Mortgage
This is technically true, but not a great strategy for the successful investor. Legally, you are not responsible for the payments, although some states are attempting to pass legislation to stop investors from just walking away. You also have your credibility and reputation to consider – which are critical to your long term success. You definitely don’t want an angry seller defaming your reputation in the community, or submitting a complaint with the Better Business Bureau. Not to mention that you probably have cash invested in the house, which will all be lost. I recommend treating “subject-to” mortgages just like any other with your name attached – make timely payments.
Best of success & abundance,
Lou Castillo
Yours Free: 6 Full Months Of Specialized Real Estate Investing Strategies - Delivered To You By e-Mail, Audio and Teleseminar - All At No Cost To You...
Go here right now--> http://www.freerealestatestrategies.com
So, You Want To Buy Pre-Foreclosures?
So you want to buy pre-foreclosures? So many investors ask me about this method of finding deals. Here's my 30-second seminar on the topic. If you're going to buy PRE-foreclosures--after the seller is behind on their payments, but before the lender's auction date-then there are some pros and cons to consider.
Pros:
• There is a good possibility of buying the house subject-to the loan from a very motivated seller who just wants out.
• Information on the homeowners in pre-foreclosure is public information, and readily accessible (although this can also be a con – see below)
• Foreclosures across the country are at an all time high.
Cons:
• Depending on your state, you either have so little time before the auction date that it is almost impossible to contact the homeowners, obtain signed contracts, run title, obtain funding, and close – or – the auction is so far away that the homeowners are not even motivated by the threat of foreclosure. The truth is that they can probably live in the house rent free for a year or more.
• Most pre-foreclosure homeowners are in denial about their situation and/or angry that their private situation has become public knowledge.
• Everyone and their mother contacts these sellers once they hit the pre-foreclosure list. It’s not just investors, but also real estate agents, bankruptcy attorneys, and forbearance consultants.
If you want to focus on pre-foreclosures as a method for finding deals, then you want to stand out from the others. You might want to try unusual mailings. Have you ever received an envelope with a pen or something bulky inside? Could you resist opening it? No, you had to se what was inside. There are companies that specialize in these type of inexpensive premiums to place in your direct mail pieces. They even have unusual mailing containers (trash can, coconut, stick of dynamite) that make your advertisement stand out. The trick is to get your marketing piece read, remembered, and acted upon. The other thing to remember is that it takes multiple impressions – so you have to mail numerous times: 5-7 before you’ll even get noticed. Consistency is critical. Don’t give up.
Develop your plan for contacting the homeowners on a regular and consistent basis. If there is a long foreclosure process in your state, then you may want to consider one initial mailing when they hit the list, then only one more contact each month until your are closer to the auction date at which time you may step it up to once a week. Remember that most of your competition will stop contacting these homeowners long before the auction. The sellers who wait until the last minute are usually faced with far fewer options – that’s a great time for you to contact them.
When you do speak to these homeowners, remember to be sympathetic, but not condescending. Act as a consultant helping them to find a viable alternative to destroying their credit and their future chances at a new mortgage. What they want more than anything is relief and respect. Provide both, and you have a great chance at a deal.
Best of Success & Abundance,
Lou Castillo
Yours Free: 6 Full Months Of Specialized Real Estate Investing Strategies - Delivered To You By e-Mail, Audio and Teleseminar - All At No Cost To You...
Go here right now--> http://www.freerealestatestrategies.com
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About the Author: Phil LaBoon is a well known author who writes articles on finance and investment, real estate, etc. for www.investrealestate101.com
3 of the top 9 reasons that the real estate bubble is bursting
If you own real estate or are thinking of buying real estate then you better pay attention, because this could be the most important message you receive this year regarding real estate and your financial future.
The last five years have seen explosive growth in the real estate market and as a result many people believe that real estate is the safest investment you can make. Well, that is no longer true. Rapidly increasing real estate prices have caused the real estate market to be at price levels never before seen in history when adjusted for inflation! The growing number of people concerned about the real estate bubble means there are less available real estate buyers. Fewer buyers mean that prices are coming down.
On May 4, 2006, Federal Reserve Board Governor Susan Blies stated that "Housing has really sort of peaked". This follows on the heels of the new Fed Chairman Ben Bernanke saying that he was concerned that the "softening" of the real estate market would hurt the economy. And former Fed Chairman Alan Greenspan previously described the real estate market as frothy. All of these top financial experts agree that there is already a viable downturn in the market, so clearly there is a need to know the reasons behind this change.
3 of the top 9 reasons that the real estate bubble will burst include:
1. Interest rates are rising - foreclosures are up 72%!
2. First time homebuyers are priced out of the market - the real estate market is a pyramid and the base is crumbling
3. The psychology of the market has changed so that now people are afraid of the bubble bursting - the mania over real estate is over!
The first reason that the real estate bubble is bursting is rising interest rates. Under Alan Greenspan, interest rates were at historic lows from June 2003 to June 2004. These low interest rates allowed people to buy homes that were more expensive then what they could normally afford but at the same monthly cost, essentially creating "free money". However, the time of low interest rates has ended as interest rates have been rising and will continue to rise further. Interest rates must rise to combat inflation, partly due to high gasoline and food costs. Higher interest rates make owning a home more expensive, thus driving existing home values down.
Higher interest rates are also affecting people who bought adjustable mortgages (ARMs). Adjustable mortgages have very low interest rates and low monthly payments for the first two to three years but afterwards the low interest rate disappears and the monthly mortgage payment jumps dramatically. As a result of adjustable mortgage rate resets, home foreclosures for the 1st quarter of 2006 are up 72% over the 1st quarter of 2005.
The foreclosure situation will only worsen as interest rates continue to rise and more adjustable mortgage payments are adjusted to a higher interest rate and higher mortgage payment. Moody's stated that 25% of all outstanding mortgages are coming up for interest rate resets during 2006 and 2007. That is $2 trillion of U.S. mortgage debt! When the payments increase, it will be quite a hit to the pocketbook. A study done by one of the country's largest title insurers concluded that 1.4 million households will face a payment jump of 50% or more once the introductory payment period is over.
The second reason that the real estate bubble is bursting is that new homebuyers are no longer able to buy homes due to high prices and higher interest rates. The real estate market is basically a pyramid scheme and as long as the number of buyers is growing everything is fine. As homes are bought by first time home buyers at the bottom of the pyramid, the new money for that $100,000.00 home goes all the way up the pyramid to the seller and buyer of a $1,000,000.00 home as people sell one home and buy a more expensive home. This double-edged sword of high real estate prices and higher interest rates has priced many new buyers out of the market, and now we are starting to feel the effects on the overall real estate market. Sales are slowing and inventories of homes available for sale are rising quickly. The latest report on the housing market showed new home sales fell 10.5% for February 2006. This is the largest one-month drop in nine years.
The third reason that the real estate bubble is bursting is that the psychology of the real estate market has changed. For the last five years the real estate market has risen dramatically and if you bought real estate you more than likely made money. This positive return for so many investors fueled the market higher as more people saw this and decided to also invest in real estate before they 'missed out'.
The psychology of any bubble market, whether we are talking about the stock market or the real estate market is known as 'herd mentality', where everyone follows the herd. This herd mentality is at the heart of any bubble and it has happened numerous times in the past including during the US stock market bubble of the late 1990's, the Japanese real estate bubble of the 1980's, and even as far back as the US railroad bubble of the 1870's. The herd mentality had completely taken over the real estate market until recently.
The bubble continues to rise as long as there is a "greater fool" to buy at a higher price. As there are less and less "greater fools" available or willing to buy homes, the mania disappears. When the hysteria passes, the excessive inventory that was built during the boom time causes prices to plummet. This is true for all three of the historical bubbles mentioned above and many other historical examples. Also of importance to note is that when all three of these historical bubbles burst the US was thrown into recession.
With the changing in mindset related to the real estate market, investors and speculators are getting scared that they will be left holding real estate that will lose money. As a result, not only are they buying less real estate, but they are simultaneously selling their investment properties as well. This is producing huge numbers of homes available for sale on the market at the same time that record new home construction floods the market. These two increasing supply forces, the increasing supply of existing homes for sale coupled with the increasing supply of new homes for sale will further exacerbate the problem and drive all real estate values down.
A recent survey showed that 7 out of 10 people think the real estate bubble will burst before April 2007. This change in the market psychology from 'must own real estate at any cost' to a healthy concern that real estate is overpriced is causing the end of the real estate market boom.
The aftershock of the bubble bursting will be enormous and it will affect the global economy tremendously. Billionaire investor George Soros has said that in 2007 the US will be in recession and I agree with him. I think we will be in a recession because as the real estate bubble bursts, jobs will be lost, Americans will no longer be able to cash out money from their homes, and the entire economy will slow down dramatically thus leading to recession.
Real Estate Investing – start with getting your own finances under control
Real estate has been a driving force in world economies since the days of Babylon, one of the most fantastic developments the world has ever known, and the desire to create, not destroy, is alive and well.
To enter the realm of real estate development requires vision, direction, and risk acceptance, but a knowledgeable investor will take calculated risks that are in line with his or her overall investment goals. There are only four empirically supported ways to delve into the real estate market: actually build, buy an existing development, invest in some one else’s development, or buy into a Real Estate Investment Trust. All of these venues carry risk and reward, but they also have distinctive differences that set them apart from one another. The most lucrative would be to develop a property from square one, but these types of investments carry more risk and work. To develop a project from scratch enables investors to have more autonomy, which permits them to more openly express their creativity.
Buying an existing property requires investors to pay a premium for the property because the initial risk of failure has already been taken by another developer. To buy into another developer’s idea is also laden with risk as well as reward. Developers provide the insight, while investors, provide needed equity. This is for those who have multiple commas in their bank account but have little desire, other than making more money, to enter the real estate market. These people are usually professionals who are too involved with their own profession to spend the time that is necessary to nurture a project from its conception all the way through its evolution.
Whatever gateway is used, real estate offers an escape from the groupthink that often imprisons many conventional investors. There are many ways to enter the real estate market, but there is one prerequisite to all of these: personal fiscal responsibility. Before people can make their mark in this discipline, they must commit to personal finance reform. By this, it is said that potential developers must start somewhere, and that place is their own finances, in order to create adequate equity that can be invested without jeopardizing their future. A potential investor must search out the pivotal facets of his or her personal financial life and make an honest assessment of his or her susceptibility to a certain level of risk. Real estate must coincide with your long-term aspirations.
Developers therefore must incorporate the needs of the external environment in which they operate and preserve what little there is left by not misappropriating one of our most precious resources by releasing it to those who wish to impede sustainable development by promoting their delusions of grandeur. If not, the next major development will have to happen on Mars, and to be quite honest, the ambience there is not so bright.
Monday 19 November 2007
Monte Carlo Bright Lights Attract UK Property Buyers
A James Bond lifestye in Monte Carlo attracted the new rich Russians a decade ago, but a decade later it's the British - using conventional banking methods and with it a degree of respectability - who are investing in Europe's top tax haven.
While the British have been players in the region for nearly two hundred years, with Nice just along the coast being a favourite resort of the genteel Victorian English - in recent years the British have held a presence in Monaco, but now they're back in numbers not seen for over a century.
The new wave of British buyers is welcomed by Monaco real estate agents as their funds are more likely to be legitimately earned, while some of the 90's Russian cash was often a little suspect.
'Things have changed since the 90's when the Russian mafia were the big players in town', explains a Monte Carlo property agency, 'Then it was easy to put a few million cash down for a property and not have questions asked. In the last few years the banks have really tightened up due to government pressure because of the 'war on terror' and tracking money from illegitimate sources. Estate agents in Monaco know that the chances of a British buyer being able to show the source of their money as legitimate is very high'.
With quite ordinary one bedroom apartments at just under a million Euros, and a typical three bedroom apartment at over three million Euros, property prices have more than doubled in Monaco in the last ten years.
In the past Monaco property buyers have often been retired sixty-somethings, staying away from their home country to avoid the taxes that come with selling their business. But today's Monaco buyer is just as likely to be in his mid thirties or forties as they are in their sixties, with the middle age British leading the way.
'A few years ago around one in ten enquiries we were receiving were from the UK', the agency continue, 'but now it's virtually four in ten - a significant shift in the nationality of Monte Carlo property buyers.
The buyers have often made their money from one of three sources. The traditional company owner with a bricks and mortar business who has sold up, but also younger entrepreneurs, some of whom have made money in e-commerce. A significant number of buyers from the UK have worked in the financial sector, invariably in the City of London. We see a lot of futures and commodity brokers who are on high million pound and more salaries with annual bonues to match.
Some British buyers continue to trade or run their businesses from Monaco. Nice Airport is a ten minute helicopter ride away, and the City of London can be just three hours away from their Monaco property with the right connections. With some clever accounting thrown in, today's technology enables people to manage their UK business from Monaco in a tax free environment'.
Hotel de Paris
A loca Monaco travel guide Your Monaco.com has also noticed more Brits on the streets of Monte Carlo.
'The British have arrived in Monaco in numbers recently. The ones I have spoken to have recently sold their business or are on very high salaries with million pound and more annual bonuses. I would like to think they are coming here for the Monaco weather, but of course it is for the tax environment we offer -and of course the Monaco Grand Prix.'
In recent years the British economy has consistently been one of the strongest in Europe, and with a top rate of income tax cut a decade ago to forty per cent the wealthy have become wealthier - and want to stay that way.
'Despite the top rate of tax coming down to forty per cent, by the time other direct taxes such as National Insurance are taken into account around half of top earners salaries are - as many of the Monaco property buyers from Britain see it - being lost to the Inland Revenue. By moving to Monaco they effectively double their disposable income.
When you go to hotels in Monaco and see a couple with estate agent details on the table and a map of Monte Carlo with various places highlighted, there's an almost even chance that they will be British. A lot more than just a couple of years ago. They like Monaco, the security, the tax advantages and the closeness to London'.
By: Robert Palmer
Commercial Loans: How Mezzanine Debt Closes the Deal
This is the “answer” to a question I received this past week concerning a class of commercial real estate loans called “mezzanine” debt. If you’ve never heard of it, don’t worry. It’s usually used by fairly substantial commercial real estate developers and investors in situations where the existing debt doesn’t go far enough to get the property financed. Mezzanine debt is the modern-day equivalent of second trust deeds.
First, you need to understand that “modern” commercial lenders are a jealous lot: Most of them, whether bank, CMBS* mortgage bank, and sometimes life insurance companies won’t allow a junior lien to be recorded against a property where they have a first trust deed. There are several reasons for this, but the bottom line is that real estate investors would have needed a great deal of cash to get larger transactions done until the mezzanine lenders showed up. Here’s an example:
A real estate investor has owned a large shopping center for 5 years and wants to sell it. When he bought it, he got a 75% LTV loan of $6 Million on his $8 Million purchase price using a Conduit* loan from a mortgage bank. Rates went down from the time he bought it, and it has appreciated to $16 Million in the same time, and his commercial loan balance is now $5.5 Million. Because this is a Conduit loan, our seller would face a prepayment penalty in the range of $600,000 to $1 Million! And since they don’t allow second trust deed on the property, the Buyer would have to come up with over $10.5 Million to buy it! Not.
Mezzanine mortgage lenders get around this problem by lending on collateral other than the property. Commercial loan Conduits require borrowers to create a special entity, usually a LLC, to own the property to protect them in the event the borrower files for bankruptcy. The Mezzanine mortgage lender uses the membership interests of the LLC as collateral for their loan instead of the property. So in our example, the Mezzanine lender steps up with a loan as large as $7.3 Million (this would bring the combined loans to 80% of the purchase price), depending upon the lender’s debt service requirements. Voila! Purchase accomplished!
Mezzanine lenders also play an important role in large construction loans, too. Unfortunately, these types of commercial loans aren’t available to regular mortals. The smallest Mezzanine loans tend to be in the $2 Million the $3 Million range. But it’s good to know they’re there when you do need one!
*CMBS: Commercial Mortgage Backed Securities, usually arranged by major Wall Street investment banks who are referred to as “conduits.”
By: Craig Higdon
Commercial Real Estate: Asking the Right Questions
There are many “insider” commercial real estate secrets. One of the most important secrets is knowing the right questions to ask when investigating a commercial property investment. While I’m not going to cover all of the potential questions in detail, I will make you aware of some of the key issues. I’m also going to suggest some places to go for assistance.
Investing in real estate is a complex process. Unfortunately, far too many people jump into this complicated marketplace without the knowledge, training, and tools needed to be successful. It doesn’t help that we have hundreds of self-styled “gurus” selling the latest no-money-down-get-rich-in-three-minutes programs to confuse and demoralize the un-initiated when things don’t work out “as advertised.” These first-time real estate investors are often disappointed in the results they achieve and as a result, often abandon real estate investment entirely without realizing just how lucrative it can be.
Asking the right questions can greatly increase your probability of success, as can learning as much as possible about the world of commercial real estate. This is not an overnight process. One of the best place to start is to learn about your local commercial real estate market. In fact, being aware of the status of your local market can literally be half of the battle.
For example, when purchasing land it’s important to understand that the price of particular parcel varies according to a number of factors. These can include the relative abundance or scarcity of similarly sized and located parcels, the population’s growth trends for the area, and the proximity to good employers. Raw land buyers need to ask plenty of questions about such factors as local zoning laws, land use restrictions, utility easements, traffic patterns, other planned development, the permit process, and other issues. The answers to these questions can have a profound impact on the purchase price of the land and its final, developed value. Where do you go? Your city planning or building department is a great place to start, as is the local utility company. Also check in with a title company or active escrow company for contacts at the city and knowledge in their specialties.
These aforementioned factors are also important when it comes to buying existing commercial real estate, including retail, office, warehouse, and mixed use properties. Knowing the restrictions on building and use of property is essential to successful real estate investment, so investors need to learn where, how, when, and of whom to ask these questions.
One of the next best places to turn to for the answers is a commercial real estate agent, called a “broker,” familiar with the area in which you have an interest. You can even ask the broker representing a specific property. But, when asking your questions of a broker representing a specific property keep in mind that he or she is working for the seller of that property, not you. A local bank loan office or independent mortgage broker are good sources to consult for alternative opinions.
Investing in commercial real estate isn’t too different from investigating a crime scene. You need to ask tough questions and find the evidence to back up the statements. It can sometimes be a tough process, but asking the right questions will only increase your chances for a profitable transaction.
By: Craig Higdon
Discovering the Weak Link: Optimizing Your Commercial Real Estate Investment Strategy
Being an investor is a lot like owning your own business. You have money and people to manage, important financial decisions to make, and systems that represent your strategy. While these assets and operations result in successful and profitable deals, there are always problems arising, just like in a normal business, that can slow down productivity and progress of whatever activity is currently in motion.
A problem with many investors is that they do not view their process as a business. They do not have a company name or multiple teams working below them. They do not have business rules, regulations, checks and balances, or protocol for the people they work with. However, the truth is, commercial real estate investing, no matter how small, is a business all itself. In order to optimize this fact, one should follow proven business strategy that allows great companies to flourish with very little constraint or pain.
A very important theory that is used not only in business, but in science, politics, sports, and even everyday life is the Theory of Constraints. This theory literally transcends all boundaries as it is a scientific principle that can be applied to any relationship between two or more subjects. You have all heard of the expression, “You are only as strong as your weakest link.” This is in reference to the Theory of Constraints.
What is basically introduced is the concept that you can look at a process or relationship as a chain. One link to another, that chain is reliant on the strength of the relationship. If it is a process, and each link is a task, then each task must be working optimally so it does not weaken the chain. If one link becomes tired, lazy or behind, then the chain is all together weaker and ineffective at producing the result.
At any one time there can only be one constraint. You must tackle that constraint, and then another may appear. However, at that time, there is only one constraint to attend to. In order for a process or system to be working 100%, each link must be strong. If not, you suffer from inefficiencies; suboptimal performance and a complete slow down of the process.
Do you find areas in your business of commercial real estate investing that you are not pleased with? Are there areas you feel you and the people you work with and rely on could improve? Could wasted time be eliminated? What areas could you improve that would increase overall profitability of your commercial real estate strategies?
Within these questions you will uncover the areas where a streamlined process can greatly improve performance and decrease crisis and other problems. If your current strategy and processes are running at 100%- then there is no need to read this article. However, if you feel there could be considerable improvement, or even a small improvement that could increase your results exponentially, please read on!
Implementing processes and systems are the best way to optimize total performance. How this is done is you write down every single task within a certain boundary. For example, write down every task in creating the information packet to submit to a lender to get approval for a loan on a project. Write down every task for this specific process and then number them in how they follow in sequence.
Are there certain people involved who make this process happen? You may realize how you can cut out duplicated efforts, combine tasks into a single person who performs them, and completely streamline the process. What you do now is create a process map or flow chart showing the entire process from first step to last in the proper sequence. Identify who does what task and any time allotments or due dates if necessary. You know have a tangible, easy to learn, communicate and control process for submitting a proposal to a lender for a new project. Doing this alone will allow others to follow along with your process and have a clear understanding as to what is supposed to be done.
Do have protégés or other eager minds willing to help you in order to gain a valuable education from an experienced investor? Now you don’t have to worry about being the only one who “knows” the business. With a clear system and process map, you can now teach those around you the same, working, proven systems. With a process map individual tasks and relationships can be easily changed as continuous improvement is a benefit of process maps.
Now- back to those constraints. As you can see, if you have a reoccurring problem, you can create a system around it to alleviate the problem and have a working process to follow. With systems in place for every area of your business, you can identify the constraints. Constraints are identified by a build-up of resources where the weakest link can be found. At a certain point if the streamlined process gets slow, and the results are trickling through or you are behind on due dates, go to the place where everything starts slowing down. This is your bottle neck. This is your constraint.
At this time, you need to focus every ounce of energy you have in eliminating the constraint. Look behind the noticeable constraint as well- where was the source? It may not be where you think it is. Dig deep and find what really caused the chain to break.
By identifying the constraint in your process, it can be quickly remedied. You do not have to guess where the problem is or jump from crisis to crisis because you know exactly where the hold-up is.
If you truly want to be a successful, profitable commercial real estate investor, and a continuing improved and profitable investor, treat the investing as a true business with process maps, metrics and controls. It may take a little work to really streamline the business and create the processes from the current tasks being performed.
However, I am sure you can agree of the power this would have on your overall performance and profitability. Eliminate excess resources and duplicate efforts. Maximize total control and effectiveness of each task within the process.
You will find your operations moving very smoothly and the capacity for more deal to occur increase because you will be lean; no excess which allows for greater performance. You will see a decrease in time spent on any one activity and less money going out. You want leverage not only in your commercial real estate deals but operations as well? Implement systems and identify constraints! Watch your investing flourish.
By: Tony Seruga, Yolanda Seruga and Yolanda Bishop
Costa Rica Crime Rate - Lowest in Latin America Again
Crime is a factor that stays directly proportional to a growing urban settlement. This alone explains why Costa Rica has a very low crime rate. Most of the crime that takes place is typically petty theft. Violent crime is almost unheard of. Costa Rica is considered to be a very safe place inhabited by warm and friendly people.
Even worldwide terrorism hasn’t posed a threat to Costa Rica. And though the crime rate has increased over the last 30 years, it is still positioned well below the level of other countries. The reason behind it is because of the growing urban settlement.
But the smaller towns in Costa Rica have a crime rate that’s even lower than the meager occurrences in the comparatively larger cities. A certain population of Nicaraguans though, who formerly served in the military, find the local police an easy target, and so does a small number of violent bands that moved in from Colombia and Venezuela. However, their chief targets are banks and other financial organizations and not the common people living in Costa Rica. The government is working toward eradicating these groups and have taken care to stop illegal drug trafficking, which is guaranteed to pull down the rates even lower.
The crime rate in the land of Costa Rica is quite low when compared it with the other countries in Latin America. People, especially tourists, hardly ever fall victim. In spite of this, standard precautions always apply so keep these few safety measures in mind. Never leave luggage unattended, don’t wear too much jewelry, keep important documentation in secure places, and do not carry excess amounts of cash and avoid the dangerous areas.
Now, a crime free society is every person’s dream but sadly, it doesn’t happen everywhere in the world. Therefore, the peace and tranquility one can obtain here certainly make it inviting to those who wish to retire or invest in foreign land.
by David Lovendahl, Costa Vista Marketing
Costa Rica - A Beautiful and Inexpensive, yet Developed Country
If you are in search of a place that is inexpensive, yet has all the modern facilities, then Costa Rica can be a dream-come-true for people from all walks of life. Often we hear that folks are caught in a dilemma regarding which other country to move to in retirement years. Understandably, because it is not an easy task to relocate and more so if it’s for the rest of your life. In that case, the place needs to be inexpensive, developed and must have a lot of choices regarding shelter.
Central America entices many people headed towards retirement, but many countries lack proper infrastructure. Neighboring countries to Costa Rica are less expensive, but in exchange are the losses in personal safety, political disturbances and overall environment. That leaves only Costa Rica as the most suitable country for relocating in Latin America. The facilities in the country make for an overall good lifestyle considering the availability of modern-day necessities, a good climate and a peaceful environment.
Statistics show that Costa Rica is the place that brings all of the above-mentioned criteria under one roof. There are more Americans per capita than any other country outside the United States. Famous for its perennial good weather, friendly people, political harmony and absence of serious or violent crimes, Costa Rica is truly a unique, tropical paradise. This makes its neighboring countries like Honduras, Belize and Nicaragua fall short in the overall quality of life.
The capitol city of San Jose in Costa Rica has been rated as the city with one of the lowest cost of living in the whole world. This cosmopolitan place is filled with eateries, archaic museums and vibrant marketplaces. Maid service, utility services like electricity, telephone, water, etc. and transport expenditure are all quite reasonable here. If that is not enough, you can always visit Mercado Central, a place well known for beautiful leather stuff, meat at low cost and even real turkeys. Costa Rica is modern not only in terms of the availability of food and necessary items, but has also a well-connected network for transportation.
In Costa Rica, you will notice that gasoline is relatively cheap although ironically cars are quite expensive. Daily expenditures such as food, education and entertainment are extremely reasonable. Living in Costa Rica is so cheap that you can survive each day with just $40 in hand. Retirees can get by on $900.00 to $1,200.00 USD per month while $2,000.00 put you in the affluent range.
Places like Atenas and San Jose offers beautiful bungalows that make you feel at home with their pool area, living room, outdoor barbeque, patio, dinning area, kitchen and cozy bedrooms. They are placed in such a position that they provide you with a panoramic view of the area. Thus, if you want to remain as comfortable as you are in your home, and at the same time make sure that it is an inexpensive place, then Costa Rica is the best destination.
In conclusion, for those who are looking for a place that's inexpensive but don't want to go to a country that's so undeveloped that they won't have any of the conveniences of home will find this country an appropriate destination. Thanks to the inexpensive medical care and low-priced housing facilities along with personal safety and zero-political hassles Costa Rica provides every immigrant a fresh lease on life.
By David Lovendahl, Costa Vista Marketing
Attention Commercial Real Estate Brokers- Increase Your Sales Through Direct Marketing
The commercial real estate industry has remained the same over the many years it has made people real estate tycoons. There is a common way to do things that many of the most seasoned investors and brokers will not stray from. However, there is a progressive outlook that is changing the way commercial real estate is done. This change is initiated by the use of direct marketing techniques within a brokerage.
Many brokers simply sit back with their listings and wait for the random buyer to call or walk in the office. They may have prepared a good looking property information package for the properties on their listing, but generally, they let the buyer- investors and end users come to them.
While this is a very common strategy, why can’t the broker go to the investors? Create a strong client list of repeat buyers that has specific criteria and investment strategies? It is a lot like having clients within a business whom have a specific profile that can be catered to. There are a few very successful brokers who use this technique. However, there are more who do not, for whatever reason. Either they do not know how or are too lazy to make it happen.
We are going to discuss just a few ways how direct marketing can greatly increase the amount of properties you sell as well as increase the speed in which you can sell them. Every broker should employ these easy techniques and have an endless supply of buyers on his or her side. Want to never have a problem selling a viable property again? Then read on to learn how.
There are three items that you need to implement this direct marketing technique:
1. A website
2. A newsletter
3. A buyer’s list
Many brokers have a website, but it is purely informational- the location, a biography, and the properties that are listed for sale. There might be a contact section for an interested investor to get more information about a property. Direct marketing on the internet is the easiest, cheapest way to collect great contacts and build a profitable list.
Transform your website into a list builder by creating a weekly, bi-weekly or monthly newsletter filled with valuable information for a buyer- purchaser, end-user, or whoever else you may be looking to attract to your list. You are a wealth of knowledge about your specific location, market, purchasing techniques etc. Take what is in your head and provide valuable information to those who visit the site.
Now, the visitor does not get this information for free, however. They must opt-in or sign-up for the newsletter by giving you their first name, primary email and even phone number. When they sign-up for the newsletter, you now have a hot contact! The more people who opt-in to the newsletter, the larger your list becomes.
Now that you have these people’s contact information, you can send automated, extremely personal emails asking for their interests, criteria in commercial properties, what projects they most like to work on, and if they are looking for anything in particular.
You can get to know each person on your list and find properties according to their criteria. Here you have a buyer’s list that is showing interest in purchasing specific types of properties that you find. If you pick up a property, all you have to do is send it out to the people you think would be most interested. Keep your list happy, especially those who purchase from you. These people are your goldmine and will continue to purchase properties if you pay attention, listen to what they want, find suitable properties, and provide exceptional customer service.
Sure this is more work than waiting for a buyer to present himself to your office, but a thousand times more profitable!
With this simple and effective direct marketing technique, you will be able to increase the number of properties on your listing, and both your sellers and buyers will be pleased. This equation equals success and for all parties involved.
Do you realize the power of having a buyer’s list available to you at all times? You do not have to sit on a raw land property for three years when you can sell it in six months to a raw land investor on your list. You can bet these people will keep on coming back for more properties if you deliver a successful experience.
Your entire business will be streamlined without a lot of guess work and problems. There are many resources available to you that can help increase your online direct marketing efforts. Take it upon yourself to see what tools and techniques you can implement that will greatly increase the profitability of your business.
By: Tony Seruga, Yolanda Seruga and Yolanda Bishop
Getting Out Of Trouble!
This very possibly could be the most important article I have ever written for some of you.
What do you do when you have cash flow issues?
This can cripple your business whether your are an experienced RE investor or if your a beginner.
In early 2002, I had hit the wall. A $10,000 a month negative cash flow problem. I'd just quit my J.O.B. of 17-1/2 years so I could achieve my dream of becoming a fulltime RE investor.
I thought I had this business all figured out. I'd attended great live events and studied at the feet of the masters. I didn't for see the downturn in the rental market in my city and it reached up and bit me. I hadn't done the job of finding private lenders, so I couldn't fund my business.
Ouch!!!
Fortunately, I had a 15 minute coaching phone call with Ron LeGrand because I had signed up for a mentoring program with him. That 15 minute call got me on the right path.
He even made me the feature article on a monthly newsletter he published that month.
Some of actions he gave me were:
1) Get out 10 pointer sign for each empty house. Replace the ones that come up missing each week. Get the empties filled.
2) Get a mortgage broker that will handle C&D credit and get some of my lease option tenant/buyers cashed out.
3) Cut spending on buying houses and focuses on selling. He had more actions and I'll share them in a future newsletter.
Let me list a few ways to get out of trouble or at least generate some near term cash...
1) Refi!
Yep, if you're paying a private lender 15% and you are holding the property longer than planned, you need to make sure you don't get upside down on the property. Watch your profit margin. If you need too, either bring in a private lender at a lower rate or find a lending institution for 6% or 7% and refi. Now, you'll need to do the math and see where the breakeven is:
a) Loan x 15%/12 = interest per month
b) Loan x 6%/12 = interest per month
c) A - B = $ saved per month
d) Closing cost $ / $ saved / mo = breakeven
So if the breakeven calculation comes out to 6 months then if you are going to hold the property longer than 6 months, then do the refi.
2) Find at least 3 mortgage brokers and let them compete for your business.
3) If you have a bunch of equity in the property...
a) Sell at full price and if need be, carry back a 2nd mortgage and then sell the 2nd.
Hint: How to sell a 2nd? Run an ad in the local paper.
b) Wholesale to a RE investor
c) Cut price and look for a cash buyer
4) Look at your 'model'. What I mean by that is to take a hard unbiased look at the structure of your business. Is it making you money? Do you know your real numbers?
Let me give you an example. When I got into the business, I was using a buy & hold philosophy of low end properties. It worked but I wanted to make more money and not wait years to payoff the property to have a great cash flow.
So, I decided to buy, fix & sell the same houses with a lease option exit strategy. I'd fix the property to sell and not to rent so I had a larger lien on the property.
It didn't work. The reason it didn't work was because the tenant/buyer had a 'renters' mentality on these low end houses.
They would live in the property for a few months to a year and then quit paying. I'd evict, put $3,000 back in the property to get it up to speed and then do it all over again (and again and again).
When I did the math, I realized that I wasn't making the profit I had expected. To top it off, when I did get one of these closed, I'd end up carrying back a 2nd mortgage. Ouch! That just added insult to injury.
Let me give you a model that might work for some of you.
1) Target a medium price range property or higher.
2) Purchase for all cash using private money. Let the money accrue.
3) Fix and retail.
4) If not sold by 6th month, then refi at 6-7% interest
5) This frees up the private lenders money so you can use it again.
6) Put a lease option tenant or land contract (contract for deed) buyer in the property. This covers your monthly expenses.
Look at all the upsides to this model. You buy a property for all cash and have zero holding cost. You are trying to retail and get quick cash. If it doesn't sell you go for soft terms, free up the private lender money so you can use it again and get a cash flow property because you refi the property at a low interest rate.
This cookie cutter approach will make you wealthy.
5) Tenant/buyers that have credit challenges...
a) If they need to open up a credit line to get financed, I hand them the form when e do the lease/option or land contract (contract for deed for some of you).
b) Put an escalation clause in the contract both on the price of the property & in the monthly rent/mortgage.
Something I am currently testing...
I am purchasing credit repair packages and then offering them to my tenant/buyers that have credit challenges. I'll keep you posted.
In closing, I realize some of the items above might not be very popular with some of you but on the other hand, it might be a life saver to others.
The key to all of this is to take action.
By: Alan Cowgill
Commercial Real Estate: The Importance of Population Trends
While commercial real estate can be an excellent investment, it’s all but impossible to succeed in this competitive environment without some sort of game plan. The most successful professional real estate investors are those who are able to look at a given area and accurately predict which parts of a given city are likely to experience the most growth in relation to other areas in or near that city. Those who are able to gauge such trends can enjoy enormous advantages in the real estate investment marketplace.
One of the major advantages of this approach is the investor’s ability to often purchase properties at significant discounts to their future, improved market values. One example of this in urban areas is where some neighborhoods go into decline over a period of years. Property values decline, but local populations remain high. Should the city council decide to “re-zone” or offer incentives to developers to rehabilitate the neighborhood, savvy investors have an opportunity to come in while real estate prices are still “low.” Thus, they can enjoy excellent profits once those blighted neighborhoods begin to turn around.
One of the methods used by these professional real estate investors is a thorough analysis of current and future population trends. Tracking the trends in population growth and population movement can provide an accurate predication of which neighborhoods are likely to succeed and which ones are doomed to at least short term failure.
Over the past several years it has been those markets with the strongest and fastest population growth that have been the hottest markets in the country. This trend has held true both in residential and in commercial real estate, and those investors who took advantage of this fact were able to realize excellent profits through the buying and selling of residential and commercial properties.
It is easy to see how population movement and population growth impact the housing market, since a higher population density increases the demand for local real estate. In turn companies looking to open new facilities or new branches often look to areas with high population growth, causing a spike in commercial real estate prices as well.
The movement of population from one area of the country to another can also be an accurate predictor of when it is time to sell. The nature of the neighborhoods in which investors own property can sometimes be difficult to determine, especially from a distance. So, tracking population trends can be a big help to business owners and owners of commercial real estate around the country.
Whether you are planning to buy commercial property, sell commercial property, or do a little bit of both, paying attention to the growth and movement of the local population can be a huge help. Real estate investors need to be cognizant of the trends which could effect their investments and population growth is one of the most important to track.
By: Craig Higdon
Commercial Real Estate: Raising Equity
Those researching the subject of commercial real estate investment are likely to encounter the term “OPM” on a regular basis. OPM is an acronym for “Other People’s Money.” I’ve covered this topic in general in an earlier article, but today I want to focus on raising “equity” for your commercial purchase transactions.
To review, the reason many people are reluctant to invest in commercial real estate is that the property values are often so high that it takes a great deal of money to complete a transaction, even using75% to 80% loan to value commercial loan. Few individuals have the financial resources needed to buy suitable properties for cash, let alone the $1,000,000 or so you would need to purchase even a moderately priced $4,000,000 building. This is where the concept of using other people’s money comes into play. The idea is to pool the funds of like-minded investors to purchase a property and then duplicate the process to build a portfolio.
The difficulties facing most investors are finding the other people with the money and proactively structuring the transaction. Everyone needs to be clear on their role in the transaction, how profits (or losses) are distributed, how results are reported, and how the project ends successfully. The process is not as difficult as it may seem at first and it even has a name: “Syndication.” Potentially, even commercial real estate syndicators with little or no credit history have access to hundreds of thousands of dollars, all as close as the people they already know. One word of advice here, though: Start making a serious effort to clean up your credit if you are challenged in this manner. You may have to guarantee some loans and you don’t want your credit history to be a stumbling block.
Before you start telling everyone you know that you are raising money for a commercial real estate investment, there are some things you need to know and that you’ll likely have to research:
First, you need to understand investment entities, such as Limited Liability Companies. You need to know how they are formed, operated, taxed, and unwound because they will be your primary investment vehicle. They also establish who is responsible for what actions through the life of the investment.
Second, you need to learn about and understand a document called a “Private Placement Memorandum.” It has other names like “Investment Circular,” “Investment Disclosure,” etc. This is the document that discloses all of the potential risks inherent in your proposed investment. You need to be extremely thorough in discussing those risks because should something go wrong with the investment and you don’t cover it here, you could be subject to a lawsuit. One key aspect of this part of the process is having a good attorney working for you with experience in these types of transactions.
Third, you need to have good analysis and presentation skills. You should know the ins and outs of spreadsheets (or know someone who does) so that you can dissect a transaction completely and put together a good case for making the investment to your potential investor partners.
Fourth, you need to find the investors. Start with busy, successful people whom you know, who have more money than time: Your doctor, dentist, psychologist, veterinarian, accountant (who is really good for knowing OTHER busy, successful people with more money than time), attorney, dry cleaner, golf pro, etc. You’d also be surprised how many people you know who have I.R.A.’s or 401k plans full of under-performing money who are looking for a good investment vehicle. You can advertise for investors, but be VERY careful before doing this. You MUST talk to your attorney about local securities laws and how they affect what you say and to whom you say it. You want calls from investors, not regulatory agencies!
The process of raising commercial real estate investment equity isn’t rocket science, but it does involve some study and the help of some knowledgeable professionals. Take your time to do it right and you’ll be making more money (your own, this time) than you thought possible.
By: Craig Higdon
Want to Learn What Donald Trump Has that You Don’t- But Can Get It?
Donald Trump is probably the most recognized commercial real estate investor in the world. His savvy investment strategies, awesome legal advisors such as George Ross, and personal skill shave allowed him to rise to the top of the commercial real estate industry.
There are other investors who are just as smart and creative, if not smarter and creative than Mr. Trump, but they lack something that Donald has perfected- almost right out the gate.
It is not his ability to locate below market value deals. It is not his ability to find financing of astonishing dollar amounts. It is not even his ability to identify patterns and trends in the commercial real estate market and make moves before other investors even know what was going on.
Donald Trump has charisma, can build relationships between many parties, and is an expert at selling the big picture. These characteristics are extremely important to the successful commercial real estate investor and will allow for accomplishments that otherwise would not even be possible. He has accomplished impossible deals and has made luxury lifestyle the premier way to live. His ability to add tremendous value to every property he has worked with had made him who he is today. Without charisma, his ability to build relationships, and sell the big picture, his wealth and reputation would not be what it is today.
Charisma is the ability to ignite passion and motivation among all those who are in an ear’s reach of the person. Charisma allows everyone to breakthrough barriers that otherwise would remain standing. Those who are charismatic can make even opposing forces to agree on a common goal and move forward ambivalently. Donald can do just this- igniting passion and excitement that lines people up to follow in his direction. He becomes a true leader that others happily follow because they believe in him and his message. This characteristic will let you bring people on board that otherwise wouldn’t even think about working in your favor. It is a very helpful and powerful characteristic to possess.
The next characteristic is being able to build relationships with everyone that you work with, is absolutely critical in the commercial real estate industry. You want to rub elbows with the decision makers in your city; those who run the chamber of commerce and zoning and planning committees at every level of the city. Get past the gate keepers and speak to the core people asking for their advice and become close acquaintances on a first name basis. These relationships can be implemented before you even think about doing a deal where their influence may be necessary. Relationships will not only get you insider information, but will give way for special favors and a good word to others who may influence your accomplishments.
The final characteristic is selling everyone on the pig picture- everyone who is influenced by the value created in the deal. The community, the city, builders, developers, banks and even businesses around the location in which the project is growing all need to understand what is not there currently. As you know, these projects that were once old, dilapidated buildings that did absolutely nothing but bring the city down, can be turned into multi-million dollar establishments that can change the value of the entire city.
You see, not everyone has vision. Not everyone can see what it is you have pictured in your mind. You must deliver it to them in beautifully drawn pictures and in a very charismatic way so that they understand what it is you want to accomplish. Deliver the benefits and the experience of what it is you want to create. Do this and you will have people lining up to help add value to your vision.
Master these qualities, and you will bring a room of onlookers to their feet in admiration and appreciation. Get the insider information and create relationships that will give you the upper hand in any deal you move forward with. Be the person everyone looks to for inspiration and motivation. You will see how much easier and more effective you will be in creating the deals that create massive wealth.
By: Tony Seruga, Yolanda Seruga and Yolanda Bishop
