Real Estate Investing - Angles and Analysis

Good Morning,
   How is everyone doing this morning? Fine, I hope!

   Where do I even start in terms of this topic? It is such a broad topic, and if you ask 10 different people, you might wind up with 10 different answers and multiple opinions.

   Let's look at some of the angles of Real Estate Investing. Basically, the bottom line is that you purchase a property, hold on to it in hopes that the price will appreciate (possibly renting it out while you wait to recoup all or part of your monthly payments), or, you purchase a property and "flip" it, which means buying and selling a property quickly for a profit.

   Where can you find properties? Foreclosures have spiked, and the homes that are foreclosed upon are often sold on the steps of the local courthouse (depending on where you are). The problem here is that these are very risky investments. In a story written by Veronica Chufo on the DailyPress.com ("Real estate investing: Is now the time to buy?"), some investors and real estate agents weighed in on the process and the risks involved.

   In the article by Chufo, Greg Hatcher, an investor and real estate agent with EZ-Vest Realty, pointed to the fact that a majority of these homes are "underwater" (the value of the home is less than the outstanding mortgage). This means that it would not be a good investment, says Hatcher. There is also the potential for liens on the property, says Hatcher, which would need to examined via a Title Search. One other risk Hatcher mentions, which is probably one that we are all quite familiar with when discussing foreclosures; "an investor can't see inside the house, let alone have an inspection, as a traditional buyer could". In sum, Hatcher says that we would only recommend this to very experienced investors and those that "have cash that they can afford to chance".

   A Less-Risky ("safer?") route is to find sellers that must sell, but do have home equity. Hatcher says that real estate agents could be very helpful in your search.

   When you find an investment property and you're ready to purchase it, it's time to think about financing. Hatcher says that investors often must have a larger down payment (of about 20 percent), and that they also need money "in reserves and cash for upgrades and closing costs". He said that with lenders, "The theme would be cash is king", since they look for buyers who have liquid funds (lines of credit, cash in the bank, money available in 401(k)s or IRAs, per Hatcher).

   What you do with the property boils down to the local market, financing, and your own desires. The typical decision is "Flip or Rent", and this is analyzed by Chufo. Flipping was popular during the Real Estate boom, but has slowed down dramatically, because the "buyer pool has shrunk because lending requirements are stricter", writes Chufo.

   The other flavor is buying a home and renting it out (and sell them when the market rebounds). Other buyers, as Chufo refers to them, are "keep and hold" investors (they will act as landlords by renting the properties instead of reselling them). Patti Robertson, a HomeVestors franchisee in Norfolk and president of the Tidewater Real Estate Investors Group, adds that investors are getting "more rental income now than ever before", and she points to higher rental payments vs. lower housing costs. Specifically, she said, "Rents more than cover mortgage payments", and provides "instant cash flow". Of course, it would be a disservice not to mention Rent to Own, in which the home is rented out with an option to buy at a predetermined price during a specific term, i.e. 12-months, 24-months, etc. (Learn More on Rent to Own Homes Here).

   To determine rent/hold or flip, Hatcher says that a real estate agent would need to conduct a "market analysis on comparable properties", and a post-rehab value of 75-80% of market value would be favorable to a keep-and-hold investor, but he says that a "flipper" would need a property at a market value (post-rehab) of about 60%.

   Investors are still out there scouting for deals, says Chufo. Hatcher suggests that new investors should try to joint venture or partner with more seasoned investors, and can network with other investors via a Real Estate Investors Association (an REIA). One investor, Maryann Krzywicki, has done her homework, and found a business partner. She feels it's a good time to invest, "because it's a buyer's market". Chufo also quotes Patti Robertson (an investor for over 4 years), who is also positive on Real Estate Investing, and says that, "Most people have their money in the stock market right now earning zero, or in the bank earning half a percent. Real estate is on the bottom. It has to go up," she said.

   Are you a Real Estate Investor? Are you a potential Real Estate Investor? What is your experience with the Real Estate Market? Please pass along any tips to our friends that are reading this article.

Would You Like Our Blog Posts Sent Directly to your E-mail? Here's How:
1. Locate the "Follow this Blog by Email" box on the Right Side of your Screen.
2. Type your E-mail address in the box, and click "Submit"
3. Check Your E-mail and Confirm Your Subscription...it's That Simple !

Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #RealEstateInvesting #foreclosure #fliphomes #renttoown #underwatermortgage #financing #renting #lending #landlord #keepandhold

The Return Of Subprime Mortgages?

Hi Folks,
   Welcome back, and glad to have you here. It is October, and as much as I don't want to face it, it is the month that I will turn the big 4-0 (On 10/31 - Halloween). Oh well !

   One other sad thought is one of the people who have been hit between the eyes due to the subprime mortgage crisis. Subprime mortgages are loans made to people with less than perfect credit or financial situations, and these types of loans dominated the lending market until the house of cards fell down, literally. Subprime has become a household name, and most people cringe when they hear it...but there are others who get very excited at the very thought of these types of loans!

   According to Preston Howard, a Mortgage Broker/Owner with Rose City Realty, Inc. in Pasadena, California, "subprime financing is poised to make a re-entry into the market place in a big way", in a recent story he wrote, titled, "Can Subprime Make A Comeback?", on the BrokerAgentSocial.com Website. "Where there are payments to be chopped up into little pieces, someone on Wall Street will dice and transform them into some form of marketable security to be sold to the masses at a cost, and generate profits for the investment bank that brings them to the Stock Exchange floor", says Howard

   But how can this happen, after what we have all suffered from the subprime fallout? "The answer lies in the structure and the insurance", Howard says, pointing to a Money Backed Securities (MBS) offering with "seven times the insurance protection that is normally required for a high quality, private securities offering", but has earned a "debt rating that is better than the United States of America".

   Are we really going to do this all over again? At first glance, the pool of sub-par mortgages looks more like FHA loans (as opposed to subprime deals), with a 4% yield, >640 Credit Scores of the borrowers backing the mortgages, and an LTV at about 95% on average. But, as Howard adds, "It appears as though the product is being packaged in a “sub-quality wrapper” to prep the market for additional, lesser quality deals in the future."

   Let's look at the good here: "this could be the start of something beautiful as the housing market is languishing in a rut, awaiting products to unleash pent up demand", says Howard. Very true.

   "Conversely, this could be the lever that pulls us into a second recession", says Howard, who says that there is a moral hazard potential here, where the needs of unqualified borrowers will take a back seat to the fees generated. This is a big risk.

   Are you willing to take the risk? Will it hurt us again, or have we learned our lesson?

Would You Like Our Blog Posts Directly to your E-mail? Here's How:
1. Locate the "Follow this Blog by Email" box on the Right Side of your Screen.
2. Type your E-mail address in the box, and click "Submit"
3. Check Your E-mail and Confirm Your Subscription...it's That Simple !

Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #subprimemortgage #MoneyBackedSecurities #MBS #FHAloan #lending #mortgagebroker #financing #WallStreet #recession

Does Subprime Still Exist ?

Hi Folks,

   Hope you've had a great week, and that you've been able to keep warm !

   A few days ago, a colleague of mine asked me if subprime loans still exist, and I realized that I have not heard the term, "subprime", for quite a while, and I also realized that before responding to him, I had better gather a consensus from some mortgage professionals with knowledge on this topic. At the same time, I figured that this might be something to share with all of you good folks out there, as well.

   We spoke with a few sources, one of which is Fred Glick, a mortgage broker and banker, who says that, "Fannie Mae and Freddie Mac now have minimum credit score standards based on loan to value.", and that the, "new subprime lenders are private ones that charge a lot in rates because they are limited to what they charge in points by many different state and federal laws, including but not limited to what is coming out under the Merkely Amendment of Dodd-Frank", that, "limits compensation to a maximum of 3% of the loan amount and does not allow for both front end points and back end compensation from lender to broker in the same transaction."

   Steven Bote, Mortgage Planner, says that the "very short answer" is, "no, subprime lending does not exist.", and he continues to say that, "for me, the defining characteristic of all subprime loans is the absence of "documented income necessary to support the ability to reasonably repay.". Bote says that today, residential financing is on the "complete opposite extreme of the lending spectrum from where it was three years ago during the height of the subprime era, and as such, everything is fully documented (pay stubs, W2s, tax returns, schedules, etcetera)."

   Any discussion on lending would not be complete without looking at the impact of FHA and VA loans, of which Bote calls, "Government-based loans that allow for higher LTV-based financing, such as FHA and VA". Bote says, that for example, "FHA allows a person to buy an owner-occupied 4-unit property with as little 3.5% down of the purchase price, and VA financing of the same property type allows for 0% down payment (and with as low as a 620 middle FICO)", and says, "To put things into perspective, conventional financing requires all buyers to put down a minimum of 20% of the purchase price." Glick says on a similar note that the, "VA has gotten tougher and FHA claims not to have a minimum, but the GNMA market is moving up to 620 to 640 as a minimum. So, for the people with the scores in the 5's, it's a problem unless you have lots and lots of equity."

   Greg Cook, a Mortgage Professional, agrees that a, "certain segment of the subprime market is being served by FHA financing", and also says that, "Most subprime (hard money) lenders have gotten out of owner occupied loans because federal and state legislation limit the total fees that can be charged. These limitations do not apply to commercial, business or investor loans, so hard money lenders have evolved back to these types, which were their staples before the rise of subprime."

   So, with all of this information in hand, I have duly advised my colleague that the subprime market does still exist (well, kind of), and as Cook said, he has seen, "subprime mortgages start out as hard money, morph into subprime for homeowners, and back to hard money.".

   Do you have anything to add to this discussion? We welcome your comments and insights.

Have a Great Weekend, and Happy Rent-to-Owning !
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

TAGS: #mortgage #loans #hardmoney