Should I my home as a rental...or should I sell?

Let me start off by saying…I love purchasing rental property. In my opinion, it provides a “long term” investment strategy that you can see and touch.  However, I do realize that real estate investing is not a good fit for everyone. Over the last 12 years,  I have seen plenty of clients ponder the decision of either renting out the home they live in or selling it. Below is a short list of thing things I would recommend for you to consider…Enjoy!

What type of loan do you have?

In my opinion, adjustable rate mortgages are the enemy of long term investments like rental property. If your payment begins to rise while your rents stay the same, you can find yourself in big trouble. At the moment rates are low and adjustable rate mortgages may not seem bad…but…don’t fall for it. If you have an adjustable mortgage on a rental consider refinancing to a fixed mortgage or sell the property.

What is the monthly payment?

What is your TOTAL monthly payment…calculate principle, interest, insurance, property taxes and any HOA dues.

What is the expected rent amount?
Determining market rent can be accomplished by researching rents on Craig’s List, Redding.com or even contacting local property management companies. Look for “For Rent” signs in the area of your potential rental. Call and get the details of the home. Ask about rent and other rental terms.

What is the cash flow you are projecting?
I will try not to over complicate this. Cash flow is the difference between your monthly expenses and the rent you collect. (i.e. expenses including mortgage equals $1,000. Rent collected equals $1,200.00. Total monthly cash flow equals $200.00. Generally speaking, most investors are looking for 10% or better return on investments. Look at the potential equity in your home, are you getting a 10% return on it if you rent the home out?

What is the ongoing maintenance you expect?

Maintenance on rentals can sneak up on you quickly. Consider major expenses like roofs, heat and air, carpet, paint, landscape and plumbing. The big question is…Can you afford to fix a major problem when it occurs?

Can you handle vacancy?

Vacancy is a reality in every rental property. There will be periods of time that you will not be collecting rent while you are looking for tenants. There can also be a vacancy while you are making repairs like carpet and paint between tenants. Can you afford it?

What are the tax implications?

Tax liability for real estate is different when you rent a home out. Typically, if you live in a home as a primary residence for 2 years or more within the previous 5 years you qualify for a capital gains exemption for between 250k to 500k depending on marital status. When you make the decision to rent a property out, over time you may change some of the potential tax benefit. CHECK WITH YOUR C.P.A. FIRST!

What length of time do you expect to hold the property?

The current real estate climate is shaky. If you are considering holding your home as a rental until it goes up in value, plan for 5-7 and up to 10 years. The bottom line is, it could be some time before there is a real benefit to renting a home for market appreciation reasons.

If you have additional questions regarding renting your home out or selling it…Please feel free to give me a call.

How to WIN BIG during the Spring Buying Rush!

Spring selling season is upon us. With the majority of homes coming to the market between April and July, pricing and preparing a home for sale is a major topic. Homes are typically valued by comparing similar homes with similar features and benefits. Location, age, bedrooms, baths, and extra amenities all tie into the overall value for a home. The most successful sellers use other seller’s homes as a gauge of “what to do” and “what not to do”. For example, let’s say your neighbor’s home is just like yours. The home has been listed for 3 months at $300k and has not sold. You can view this information as market research and price your home lower or you can try the same $300k price and risk the same result. One of the best ways to determine a list price is to preview all the competition prior to listing a home for sale. This takes most of the guess work out of what needs to be done to sell your home for the highest price, in the least amount of time.

Prices have continued to remain strong in the below $150k price range. First time home buyers, investors, and low income purchasers have been competing for the same products. As a result, price stability and examples of appreciation have even been identified. The middle market between $160k and $350k is beginning to show signs of stabilizing. Appraisal challenges and distressed property sales continue to be the largest challenge in this price range.

Foreclosures continue to enter to the market in high volume. The good news is that most of these homes are being absorbed quickly by buyers. The rumored gluttony of foreclosures coming on the market all at once is highly unlikely. It is estimated that in Shasta County, approximately 450 homes are currently owned by the bank, another 400 in some form of foreclosure, and an estimated additional 500 home owners missing payments. The banks may increase the number of homes that come to the market, but it appears that it will not make a major negative impact on values because the amount of homes selling each month is high.

Short sales continue to represent a large portion of the overall sales each month. Banks have been more cooperative with short sales, and the state has added legal protections for homeowners completing a short sale. With more short sales getting approved, it is likely that the number of foreclosures will be impacted. More short sales getting approved means fewer homes getting foreclosed on. Short sales have grown in popularity over the past year. A short sale is typically free to the home owner and provides a clear path for getting a home sold.

Investment in real estate has become more popular over the past year. Home values are at all-time lows when factored with the affordability index. With the added low interest rate environment, investors are growing in both numbers and desire to buy real estate. The rental market is strong and vacancies are low. 10% or higher, cash on cash returns are common and more “hedge fund types” are joining in. “Competitive” is the best way to describe the lower end price range. There are good opportunities but it takes effort to win out and take your prize! Interest rates remain low. The average 30 year fixed mortgage over the first quarter averaged nearly 4%. It is expected that rates will remain low and may begin to climb slightly over the remainder of the year. 2013 is a whole new story. With inflation concerns, rates may move quickly after the election.

The 4 Types of Homes Selling in Redding....Which Home is Yours?

Home Values in the Lower End: $ 0 - $150,000

Home values below $150,000 have been holding strong over the past 2 quarters. The majority of the homes for sale in this price range are distressed property sales. In several cases, we have noticed homes selling for higher prices now than they did 12 months ago. For example, in Star View Estates, a large, entry level subdivision in east Redding, a typical 3 bedroom, 2 bath home with a 2 car garage last year was selling $90,000. This year, the same home is selling for over $100,000. The demand for these types of homes has increased as a result of competing first time home buyers and investors.

Home Values in the Middle Market $160,000 - $250,000

Home values in the middle market have shown signs of stabilizing. The number of distressed property sales in this price range is somewhat less than in the lower end. With short sales still playing a major role in this price range, it will be difficult for these home to fully stabilize in the short term. However, there is demand for clean, move in ready homes and “normal type listings” sell quickly when priced correctly. Many buyers would prefer to purchase a “normal listing” instead of a short sale or foreclosure. A short sale may take months to close, if at all, and a foreclosure typically needs additional work prior to moving in.

Home Values in the Middle-High End Market $260,000-$350,000

There has been a noticeable increase in demand for homes in this price range. Year over year, the total number of sales in this price range have nearly doubled. For example, in January there where approximately 40 homes that went into escrow, compared to only 20 homes 1 year ago. As with homes in the middle market, there are foreclosures and short sales to contend with. The good news for home owners is that “normal type listings” in good condition can bring a higher price than short sales and foreclosures. Low interest rates and availability for financing have made it possible for buyers to purchase really nice homes that were out of reach a few years ago.

The Upper End Market $360,000 - $900,000

It is hard to believe that the upper end market starts at $360,000! The only reason I suggest that the upper end market starts at $360,000 is because sales dramatically drop off at this point. The upper end market has a lot of movement. Prices, appraisals, inventory, and buyers are hard to predict. I just sold 2 properties on the east side of Redding, in the “Saratoga area”, that each sold for over $500,000. We were able to find the buyer in under 30 days, and the appraisals came back without any problems. However, there are plenty of homes in the same area that are just sitting. What’s the difference? I would like to think it was my marketing, but the truth is that they were just “great homes”. Buyers in this price range want great homes! On the west side of town, I listed a home in “White Hawk”, a very nice upper scale subdivision, and received 2 offers within 10 days. The home sold for full asking price and the appraisal came in $45,000 lower than the contract price. In a crazy market with short sales and foreclosures playing a major role, it is hard for buyers, sellers, and appraisers to identify value.

As requested...Here is how a Redding family eliminated $195k in debt in 1 year!

A TRUE STORY OF AVOIDING BANKRUPTCY
18 months ago Josh met with a local contractor and homeowner that was upside down on his home, way behind on credit card payments and facing bankruptcy. After learning what other options were available, the homeowner sold the home, paid off the credit card companies, and was able to avoided bankruptcy. Below is an outline of what happened.


THE PROBLEM...

--The homeowner had borrowed money against his home to fund his business and make payroll.

--The home was now $150,000 underwater.

--The homeowner had acquired $45,000 in credit card debt by funding his business and making periodic mortgage payments.

--The companies, that the contractor had been working for, could not pay for the services the contractor had provided, and as a result there was very little income coming into the home

--The calls from the mortgage lenders and credit card companies were increasing every week.

--The stress of "what to do" was growing with each passing day...


THE OPTIONS...

--The home owner could file for bankruptcy and accept a worst case scenario from the start.

--The homeowner could attempt to short sale the home with a non-recourse provision and negotiate with the credit card companies.

WHAT ACTUALLY HAPPENED...

--The home owner listed the home as a short sale and found a buyer that wanted to purchase.

--The homeowner spoke with the credit card companies and negotiated a deal with a low, total payoff, amount.

--The homeowner told the credit card company that until the home successfully sold as a short sale, they could not finalize the deal and the credit card company agreed.

--The home successfully sold as a short sale with a non-recourse provision for the seller.

--The homeowner was able to save money over several months because he chose not to make payments on the mortgage during the short sale process.

--The homeowner was able to use the money saved during the short sale to pay off the credit card companies.

--Get Tax and Legal Advise! This success story did not happen by just "listing" the home as a short sale. After Josh met with the homeowner, advice was also given by both a real estate attorney and a tax professional. The homeowner was sure to get all the information available prior to taking action. We recommend that anyone facing serious financial problems should consult a legal and tax professional.

A TRUE SUCCESS STORY...
The homeowner could have accepted the worst case scenario from the start. The home owner could have filed for bankruptcy. Instead, the homeowner took a path that allowed him to sell his home and pay off his credit cards, without filing for bankruptcy.

The process was not easy. It took effort to work with the mortgage lenders and credit card companies. There were days when I am sure he wanted to give up...but he didn't. Now, this true success story is approximately 1 year away from purchasing a home again, at today prices and with no debt!

PLEASE HELP US HELP OTHERS...
I realize that this story does not pertain to everyone reading it. But...take a minute and consider who this story may pertain to. Who can you think of at work, church, or in your social groups that should review all their options?

Most of the people I help with short sales have been referred to me by others. It is difficult to speak with people about personal issues when they don't know who you are. A referral, from one of my great clients like you, can make all the difference in helping someone feel comfortable speaking with me about personal, financial problems.

Thanks again, in advanced, for your help.

2011 End Of Year Market Update

Inventory
Inventory has been dropping rapidly and is currently sitting around 900. When we remove the pending short sales from the total number, it actually sits closer to a total of 750 homes for sale. This is a good sign…the lower the inventory, the easier it will be to stabilize home prices. With an estimated 3.5 million homes in some stage of foreclosure in the U.S., expect several more years of little to no appreciation.

Home prices
Nationally, experts predict that prices may decline anadditional 2-10% over the next 12 months. Most of the price declines will befound in the above average sales price ranges, which in Shasta County is just over 165k. The lower end market (under 140k) will likely experience a very small price decline over the next 6 months and even a possible up tick by the end of 2012.

Investors
Investors are diving into the market from all directions. Local investors, state investors, and even foreign investors are diving into the real estate market. Last year, I represented several transactions involving investors from China. Sensing opportunity and all time low interest rates, many are jumping in with a noticeable increase of purchases by previous homeowners, who short sold their homes just 2-3years ago.

Pent up demand
A large number of college graduates eager to leave their parents, and 20-30 year olds with decent jobs, who have delayed purchasing because of the recession and plummeting home prices, are beginning to consider home ownership. As the economy picks up steam these buyers will be soaking up the gluttony of foreclosed homes.

Foreclosures

Foreclosures are still plaguing the local market. With an expected 50% of all sales in ShastaCounty in 2012 to come from distressed property sales, expect to see a ready supply of homes at attractive prices continuing to come on the market. Experts predict that many home owners that are underwater by more than 25% are eventually going to short sale or foreclose. This trend is expected to carry on thru 2014.

Buyers
Any buyer purchasing over 300k in Shasta County has their pick of the inventory. With less than 8% of the buyers in the market looking to purchase over 300k, sellers have to price more aggressively in-order to create demand and will have to negotiate.

Any buyer looking to purchase below 140K in Shasta County has their work cut out for them. With more than 45% of buyers in the market looking to purchase under 140k, buyers need to be prepared for “Bidding Wars”. A solid plan, for finding homes and becoming an expert at the price range you are shopping in, will give you the advantage.

Increase in short sales slows the foreclosure market
With the massive scandal over foreclosing without properpaper work, many banks are more open to short sales. A short sale is acooperative sale and results in fewer law suits for banks. This can serve as a silver lining for families that find themselves underwater as they watch the comparable homes to theirs sell for a lot less. These homeowners can short sale and find themselves in a similar home with a much lower mortgage and payment within just 2-3 years.

How low will rates go?
The Federal reserve has committed to keep long term interest rates low through 2012. Expect rates to remain relatively the same through spring as a result. Currently, rates are hovering around 4.75%. Investors can expect interest rates around 5%.

Expect more government mandated energy saving requirements
Both California and the U.S.government are pushing energy conservation. Expect 2012 to bring newrequirements for all types of home improvements. Sealing and insulating duct work, new roofing requirements, new toilets, shower heads, lighting and lightbulbs. Escrows in the future will also require many updates to be made to a
home. 2012-14 will bring major changes in how a home is purchased and sold. The days of selling “as-is” may be a thing of the past by 2015. With an evergrowing demand on resources, changes are being made that will aim to keep energy costs in check.

Learn how to reduce your property taxes!

Each year Shasta County homeowners pay property taxes. The taxes are typically based on 1.1% of the assessed value. With the recent market decline, many home owners may be able to reduce their property taxes in the future with just a few phone calls.

Here is how…
1. Call my office, I will run a quick market analysis for your property, absolutely FREE.
2. Determine if the market analysis is lower than your assessed value of your property.
3. Call the assessor with the information I provide you and request an informal review.

How property valuation works:
In establishing market value for a change in ownership or new construction, the Appeals Board will typically rely on the use of one or more of the commonly accepted approaches to value: the Cost Approach, Market Approach(most common) and Income Approach.

The Market Approach compares sales of properties, similar in character to the subject property, to arrive at a value indicator. Given sufficient sales of comparable properties, the Market Approach tends to be the most reliable indicator of value because it is a reflection of the actions of buyers and sellers in the market-place. If the property under appeal was the object of a recent sale, the law presumes the sales price is the market value unless a preponderance of evidence supports a different value.

The first step, when questioning your home’s assessed value, would be to contact the Assessor’s office at 225-3600 and request an informal review of your property.

New…No Appraisal Refinance Option!

The government just passed a new refinance option.

HARP has introduced the new program as of October 24, 2011.

This program can help homeowners that want to refinance down to today’s low interest rates. In the past, many homeowners wanted to refinance and lower their interest rate, but could not because the home would not appraise for the value necessary to refinance.

The new program removes the burdensome appraisal requirement that was necessary in the past.

Here are a few of the requirements at a glance…

• Must have a Fannie or Freddie loan
• Must have purchased home prior to June 2009
• Must not have missed more than 1 mortgage payment in the past 12 months
• Must be current on mortgage when refinancing
• Must qualify based on typical income, credit, and debt requirements.

If you have questions regarding this program, call my office, 530-222-3800 and I will direct you to one of our great local lenders that can explain the process in detail.