Love For Kansas: 2012

Wednesday, November 14, 2012

War Zone

Posted in Buying, Selling, California Real Estate, Random Musings at 8:14 am by Cynthia Holt

It’s early on a Saturday morning as I write this and I’m trying to muster up enough strength to go out and show property this weekend. There’s a new phenomenon out there. I don’t know if it’s unique to the valley or if it’s spread across the country, but buyers and their agents are being massacred.Sales were way down here last year as buyers waited for prices to fall, some rather patiently. At the end of the summer we started to see a rise in short sales, but still prices didn’t move. It was in October that we started to see price reductions and they continued into the New Year. As I’ve written about in my newsletter, in January the average home in the eastern valley had dropped over $100,000. It was time to start shopping. All those buyers who have been waiting went to see their lenders and got pre-approved.

Then it happened – Foreclosures. Bank Owned properties started popping up like weeds. They are everywhere. Only they are priced $150,000 to $200,000 less than they were bought for 2 years ago.

The battles go like this: late in the week the property goes on the MLS. Agents and their buyers look at the property over the weekend. Because it is a bank owned property, the listing agent holds onto the offers, ignoring any date or time limits for consideration. On Tuesday or Wednesday or even Thursday they will send all the offers to the lending institution; by now 8 to 10 of them. There is no deal making here. Buyers are required to apply with the lender and have their credit scores pulled yet once again, risking the lowering of their scores for being requested too often. There will be addendums from the lender, often so poorly written that they contradict themselves. Buyers are required to give up many of their rights when they sign them. Then the lenders will just sit and ponder the offers. Some will get back to you in days, others weeks. Many will apply; one will be chosen.

None of these properties have closed yet, so we don’t know the difference between the asking and selling price and the listing agents are keeping mum. We only get one chance to make our “highest and best” offer. Buyers aren’t the only ones loosing out here. Because the original asking prices are artificially low, it is hurting other sellers. Remember, these are the same lending institutions that made the bad loans. Now we are allowing them to make a battle zone out of our market place. They may like the frenzy. It’s probably an ego boost to receive so many offers. But they are receiving so many offers because the general population sees them as weak – financially and morally.

Well, enough ranting, time to gather my files, my cell phone, and my energy bars. My buyers need me, now more than ever.

Million Dollar Fixer

Burbank is one of those places where million dollar fixer-uppers really exist. A couple of agents in my office listed one last week. Why is it worth over a million dollars? The view – it is breath taking. The home ain’t bad either. If you can afford a million dollar home should you buy this? No. This is for the person who can afford a 2 million dollar home, but would like something that can be remodeled and redecorated to his or her own personal style. This is a home with possibilities; a dream waiting to be created.

Remodeling Don’ts – Kitchens

I saw another one today: a great home with a disastrous kitchen. Oh, it has the usual granite countertops, new cabinets and flooring, even new appliances. It is beautiful looking. Yet, it is a cook’s nightmare. For those of us who actually cook (remember, I wasn’t raised here) there is something known as the magic triangle. The three points of the triangle are the sink/countertop, the stove/oven, and the refrigerator. The lines that connect the three points must, I repeat MUST, be straight. It must be a true triangle. If one must go around a corner to reach a point of the triangle, it doesn’t count.

Kitchens, like bathrooms, are functional rooms. They are designed and used out of requirements. Making these rooms difficult in which to maneuver, difficult in which to accomplish your mission there, makes them undesirable; no matter how “pretty” they are. Most buyers are not aware of the magic of the triangle in the kitchen. They only know that the room “feels” uncomfortable. As they imagine themselves in that spot the images do not flow, they feel disjointed, wrong. People buy according to their emotions. A home must “feel” right. Pretty will not compensate for any uncomfortable feeling. Buyers may not be able to pinpoint the reason things don’t feel right, making the feeling even more scary. So, remodelers – use the magic of the triangle. It expels the scary.

Friday, October 19, 2012

New Kansas City Corporate Housing video.

New video for Kansas City Corporate Housing company. Pretty good job on the video considering it was only $60 to make.

Live link: https://www.youtube.com/watch?v=zEBMKmoeP-I

Wednesday, October 3, 2012

Kansas City Rentals Address, Compant Information, and Business Location

OK, here are all of our review locations! Go review now! Haha.

Kansas City Rentals
(816) 298-065-8416
Admiral Blvd
Kansas City, MO 64106

Trade a Paper Clip for a House!

So does anyone out there think that they would be able to trade a paper clip for a house? Now that I think about it, I don’t think that it would be that hard to do in many areas of the country (I did buy a house for $1 recently), so let me rephrase…a habitable house in a decent area? I just picked up on the adventures of Kyle MacDonald who is on a quest to complete this task. He is hasn’t done it yet, but he has traded his way up from a paper clip to a free year of rent in Phoenix. Check him out at One Red Paperclip.

It really goes to show you what can be accomplished if you can dream it up and work like crazy.

ProHabber.com Wins “Best of the Web”

I was notified today that Prohabber.com won “Best of the Personal Finance Web” in the Real Estate Investing category from Moneysmartz.com Personal Finance Directory. I would like to thank Moneysmartz for their support and encouragement and I would encourage everyone to check out their excellent resource on personal finance.

The Moneysmartz Personal Finance Directory is your guide to the best personal finance websites, blogs, and podcasts covering financial topics important to your financial decision-making, including investing, retirement, money management, budgeting, debt, credit, banking, financial planning, insurance, mortgages, loans, real estate, 401k, IRAs, and estate planning. Our goal is to help you quickly find the most reliable and relevant sources of personal finance information, services, and products so you can make better financial decisions.

The Price of Experience

Every day I drive past a local non-profit organization called Mathew 25 Ministries while on my way to work. They usually have a message on their road sign that is either inspirational or an update of their charitable work. For the last couple of weeks, there has been a quote up there that has really hit home for me:

Experience is what we get when we don’t get what we want.

Boy, this is the truth. Learning the real estate game is not an easy task and no matter how much education you get, the real world will teach you some lessons. Just consider this the price you pay for experience.

If you have some experience to share, speak up now and leave a comment. Lets try to save someone else from making the same mistake.

Matthew 25: Ministries is an international humanitarian relief organization helping the poorest of the poor locally, regionally, nationally and internationally regardless of race, creed or political persuasion. By rescuing and reusing products from major corporations, manufacturers and individuals, Matthew 25: Ministries provides basic necessities, skill development and disaster relief across the US and worldwide.

Selling: How to Read the Market Response

So what is the property going to be worth after you buy it and do whatever it is that you are going to do to it? Investors frequently call this the After Repaired Value (ARV). The entire process of figuring out how much to offer on a property hinges on the ARV. I have always tried to stay conservative on this estimate before I buy a property to make sure that I don’t get caught with an overpriced house when I am done. I would much rather estimate the ARV low when I am looking to buy and then try to get the most possible for it when I sell. Once your property is on the market at a certain price, it is time to read the markets response to your offering. There is a fairly simple way to decipher the markets response based on how many people want to see your property and how many offers you get.

If you put the property up and immediately get several showings, you know that your offering price is right on the mark or even low for what the market expects. The buyers know what they want and how much they are willing to pay in any given area. Before they see the house, all they know about it is whatever data is provided to them with some pictures and a price. Once they are presented with this data they have the choice to go see the house as a potential candidate for their purchase or they pass on it. If you have a property that meets their criteria for what they expect on price and style, they will want to see it. If they don’t feel that the property is right for them (i.e. priced too high or just not what they are looking for) then they will not take the time to set a showing appointment.

Once you get the buyers into the house, you can gauge their reaction to the condition and amenities of the property by how many offers you get. Of course, you should not expect to get an offer from every person that comes into the house because buyers are usually very picky and they are looking for something in particular. That being said, if you don’t get any offers even after a bunch of showings, then the market is telling you something. The buyer that is willing to pay for a property in your price range has expectations of condition and amenities. If your house meets those criteria and is within their price expectations, you will get offers. If the property falls short by just a little, you may find that a few buyers will offer, but at a discounted price. If the property is just all wrong, they won’t even bother with the property.

Paying attention to the market response can help you make adjustments to the property price and/or condition and amenities to get the property sold as quickly as possible.

Networking is Key to Keeping Your Business Alive

The old saying goes “It is not what you know, but who you know.” I have been working hard at networking in the real estate investing world for awhile now. As part of my marketing plan for buying houses, I have an entire component of increasing my network. Here are a few things that I have done to keep my network growing:

I have asked to speak at the local REIA meetings to share what I know and to make it easier to meet other people that see me speak. It is amazing how many people want to talk with you after you give a speech. I could never have that much credibility with total strangers if I just walked into a room.

I have signed up to be a coach in the local REIA coaching program. I have learned more from the “players” on my coaching team as they have learned from me. Each of them brings life experience to our meetings that I have been able to benefit from.

I have started this website to speak publicly about my career. From just this website I have met all kinds of investors from all over the country.

I have remained active at the BiggerPockets forums. If you haven’t been to this site yet, you have to check it out. There is an amazing amount of free information available for anyone to read and the forums are a great place to ask questions. You will find me there with the screen name “ProHabber”.

I have recently joined the Real Estate Investor Nexus at http://www.reinexus.com. This site is new but it seems to be picking up members very quickly. It has taken me a little while to get comfortable using this site, but it should turn into a great networking tool.

Networking is the best way to learn new tricks, find opportunities and grow your confidence. When you have a network of like-minded individuals you can get answers quickly and reach your goals faster. Plus, the added benefit of a large network is that those people know other people and word of mouth can really benefit you and your business. It doesn’t matter how you find other people interested in your business, but it is important that you do. There is so much out there that you don’t even know about and the larger your network becomes, the more you will be exposed to opportunity.

What is Your Bread and Butter?

Focus is key in this business. The more defined you can be with your market, the better you can focus on becoming an absolute expert in that niche. Let’s look at a few of the niches that exist in the real estate investing world:

Location Niche - Do you concentrate on a certain area?
Entrance Strategy Niche - What particular problem do you focus on solving (e.g. house needs work, foreclosure, burnt out landlord, etc.)?
Exit Strategy Niche - What is your preferred way to cash-in on the property (e.g. cash sale, rental, lease/option, etc.)?
Market Niche - What market do you focus on (e.g. first-time-homebuyer, luxury home, Section 8 rentals, etc.)
Marketing Niche - How do you find your deals?

I love single family homes for the first-time-homebuyer market. I prefer to purchase them in disrepair at a large discount and then fix them up and sell them to a homebuyer. I market directly to the potential sellers and ask them to call me if they want to sell. I also market directly to potential buyers and tell them that they may be able to buy instead of rent.

Focusing only on your market allows you to keep your mind clear and to master your business. Once you have completely mastered your niche, your business will run on auto-pilot and you can then find another niche to conquer in order to grow to the next level. Be sure to not get sucked into the “I can do it all” mentality. It is important to be able to take advantage of a good deal when one comes along, but you need to make sure that your day-in and day-out activities are focused on mastering a single niche. Otherwise you risk getting spread too thin to effectively operate and grow your business.

So, what’s your bread and butter?

Wednesday, September 26, 2012

The Land of the Chotchkes

I can proudly say that I have sold every listing I ever took. Yet, on two occasions, even though I sold the property, I feel I failed the clients. The first time was on my very first listing, 16 years ago. It still haunts me to this day. . .

I was green and eager to please, like most new agents. It was an expired listing and I was their fourth agent. I worked oh, so, very, hard and I got an offer on the property, but it took over six weeks. The longest it ever took me to bring in an offer.

I knew something was wrong fairly early on. I could just feel it. On my third visit to the home I noticed with my newly forming Realtor eyes that the bathroom counters were tiled, very nicely tiled. I hadn’t noticed them before because they were covered in little decorative bottles: hundreds and hundreds of little bottles. I looked around me and realized there were figurines – everywhere. There were glass and porcelain pieces on shelves and countertops throughout the house. I felt as though the home had been invaded by trinkets. I was surrounded by tiny collectibles. I was standing in the land of the chotchkes.

I may have been looking at the home, but buyers couldn’t see past the owner’s “little pretties”. I spoke to the owners about these little treasures, but she insisted upon leaving them out. She couldn’t live in a home without her “little pretties”. I should have been more forceful. Being so new to the business I was too eager to please. Those little pretties cost her about ten percent of the home’s value. It sold for about 90 percent of what it was worth.

Buyers discount mysteries. Anything they can’t see, whether it’s because the shades are drawn, the lights are turned off, a door is locked, or it’s covered in little trinkets, becomes a mystery. Mysteries will cost the owner money. Please, please sellers, I cannot emphasize this enough: destroy all of the mysteries in and around your home. Pack up the art work. Put in new light bulbs. Clean out the closets. Get those inspections. And do not allow your property to be invaded by chotchkes. By getting rid of the mysteries, you are telling the buyers that you are serious about selling your home. You can demand and receive full price for full disclosure.

http://www.yelp.com/biz/kansas-city-corporates-kansas-city

Wednesday, September 12, 2012

Frequently Asked Questions

Frequently Asked Questions

How do I pay for the living accommodations and services at Kingwood Village?
What are the terms of leases?
Can I bring my pet to Kingwood Village?
Do Kingwood Village communities allow smoking?
How are rent amounts set?
What are the visiting hours?
What does it mean to "age in place."
Are all assisted living and retirement living communities alike?
Can I bring my own furnishings to my apartment?
Q: How do I pay for the living accommodations and services at Kingwood Village?
A: Kingwood Village residents' expenses are either paid for privately, or through a third-party source such as a long-term care insurance policy.

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Q: What are the terms of leases?
A: Westminster House offers a one year lease with a 30-day written notice of termination. Wilshire House requires a two year lease.

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Q: Can I bring my pet to Kingwood Village?
A: We know that pets can be an important member of the family - but we do require a $500 non-refundable pet deposit.

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Q: Do Kingwood Village communities allow smoking?
A: Yes

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Q: How are rent amounts set?
A: A resident's rent is determined by the size of his or her apartment.

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Q: What are the visiting hours?
A: When you live at Kingwood Village, it's no different than living at home—you and your guests are free to come and go as you please.

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Q: What does it mean to "age in place."
A: "Aging in place" is a term that can be misleading. In some cases, residents require services that are beyond those allowed by state regulations. In most cases, however, residents can live with us and pass away in their own homes.

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Q: Are all assisted living and retirement living communities alike?
A: No.

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Q: Can I bring my own furnishings to my apartment?
A: Absolutely. This is your home and you may decorate as you like.

Tuesday, September 11, 2012

PREVENTING FALLOUT: 5 QUESTIONS EVERY AGENT SHOULD ASK (PART IV)

Okay, after covering down payment, income, and credit in Parts I, II, and III, let’s move on to the fourth important question.

Question #4: Are You Pre-Qualified or Pre-Approved?

When I speak with Realtors, there is inevitably some question about the difference. And lenders will frequently take advantage of the confusion.

An agent of mine recently had a deal fall out at the 11th hour with a client whose lender had provided a pre-approval letter with the original offer. When my angry agent confronted the lender, the lender shrugged and laughed as if to say hey, I lied, so what.

To avoid that type of deception, here’s a convenient place to draw the line in the sand.

A pre-qualification letter represents the loan officer’s opinion about the buyer’s qualifications. A pre-approval letter says that the file has been formally approved by a lender.

Pre-Qualification

Since this is merely an opinion letter, you need to know who is rendering that opinion (see Part V). Would you trust a serious medical diagnosis to a med student? No, you wouldn’t. Since you don’t know this person and since the market is full of bogus pre-qual letters, you have reason enough to ask your client to speak briefly with your lender. In doing so, you’ll be able to confirm the buyer’s qualifications and strategy. For instance, do they need a credit for closing costs?

I coach my agents to explain that by talking with me, they’ll be able to obtain a pre-qual letter from a well known and respected local lender. In multiple offer situations, I have had my client’s offer accepted because the listing agent recognized my name.

Pre-Approval

Pre-approval letters should only be issued after the loan has been submitted and approved. This is easier than it used to be, because most loans today are submitted through the the Automated Underwriting Systems. A formal approval with a list of conditions is issued if the loan is accepted.

Here’s a tip: get a copy of that approval. If the lender balks, the approval may be bogus. And if the borrower is approved, you’ll get to see the approval conditions. That’s critical, because there are sometimes conditions the borrower can’t meet. For example, what if that stated income approval comes back approved as long as the borrower can provide tax returns. Effectively, that’s a counter offer that the borrower probably can’t accept. An approval is only as good as its conditions are reasonable.

There you go. On to Part V

IS THIS THE END OF CREDIT SCORE PIGGYBACKING?

You may be familiar with the credit improvement trick of piggy-backing on someone else?s good credit to improve low Fico scores. Usually this is done to build scores for a son or daughter with no credit or to rebuild credit for someone who has had problems.

I feel dumb for being even a little surprised that there are on-line businesses encouraging and facilitating the use of this tactic?and worse?between complete strangers to game credit scores and defraud lenders. See the Mortgage Fraud Blog?s post for a good analysis of the problem.

Here?s another article I saw today, apparently one of many that appeared last weekend on this topic. The bottom line is that this tool is about to be shut down because of abuse. Don?t blame the mortgage industry for this one. It?s like drugs. The fundamental problem is demand.

Regulators Seek End to Shady Credit Score Sites

Mortgage industry regulators are trying to crack down on Web sites that offer consumers a fast way to boost their credit scores and look a lot more appealing on loan applications. These sites promise to connect a home shopper’s credit history to a stranger’s credit card or provide pay stubs from bogus companies. One even offers consumers the opportunity to rent a well-stocked bank account for a month.

?We think these types of Web sites are increasing,’ says Frank McKenna, chief fraud strategist at BasePoint Analytics, which helps banks and mortgage lenders identify fraudulent transactions.The operators of these sites are hard to track down because the y shut down and disappear when investigators come calling. These sites also are hard to police because it is unclear which laws, if any, the they’re breaking, says McKenna.

The repercussions for the consumers are clear, as it’s illegal to lie on a form, but there aren?t laws that specifically prohibit what the Web sites are doing. One site, RaiseCreditScoreNow.com offers to add a person to four separate $20,000 credit lines with 10 years of perfect pays for $4,000. The site says that doing so could increase an individual?s credit score by 200 points in 90 days. Another company, SeasonedTradeLines.com, says it has an inventory of 100 real, verifiable credit card accounts with perfect payment histories dating back to 1974. Fair Isaac Corp., which developed FICO credit scores, says it is trying to shut down this practice, which it calls piggy-backing.

Got a question or concern? Need help with a loan? Email me. I can do loans in the most of the Western U.S.

SHORT SALES VS. FORECLOSURES….YOUR CREDIT WILL SUCK EITHER WAY

I get a lot of calls these days from real estate agents wondering what effect a short sale or deed in lieu of foreclosure (DLF from here forward) will have on borrowers? credit. That is a really important and interesting question, since the last real estate downturn preceded the widespread use of Fico scores and automated underwriting (AU) systems.

Everyone now seems aware that debt cancellation creates taxable income. In a short sale, the amount of the lender?s loss is reported to the borrower as income, creating an income tax liability for the borrower. If the borrower is insolvent at the time, the tax liability can be avoided, but only to the extent that liabilities exceed assets.

But how will credit scores be affected? And if a loan is approved through LP or DU, Freddie Mac?s and Fannie Mae?s automated underwriting engines, will the underwriter overturn the approval when she sees the typical ?settled? comment on the mortgage tradeline?

For answers to these questions, I turned to my credit reporting agencies and representatives from the capital markets to see what is boiling inside the pot.

Credit Bureaus and Fico Scores

The word from inside is that short sales and DLFs are a hot topic. The scoring models are being revised to put them in parity with foreclosures. Although some agents are suggesting that short sales are not as damaging to credit as foreclosures, that would be a bad bet. Though it may be some time before we see credit scores for borrowers emerging from short sales, just assume they are going to tumble.

Given the inherent conflict of interest?a Realtor makes a commission on a short sale and doesn?t in a foreclosure?the real estate professional should proceed cautiously when counselling a seller. A short sale that leads to a tax liability and possibly to further financial hardship or bankruptcy could easily backfire on the party who profited most from the transaction. If the resulting credit scores also render the buyer unable to purchase another home or cause increased costs for auto loans or credit cards, it is easy to imagine the borrower taking a dive and hoping for a red card.

Automated Underwriting Approvals

Typically, there is no public record of a short sale to undermine an AU approval. Although AU may still see it, we?re not certain of the effect it will have. So I asked a couple of underwriters and the V.P. of American Pacific Funding what would happen if an AU submission was approved and the underwriter later notice a ?settled? comment on the mortgage tradeline. They didn?t know, but the question triggered a vigorous and immediate investigation.

Running that question up the flagpole in the capital markets illicited a blunt response and revealed a clarity of purpose from which we should take our cue. There will be no leniency shown toward short sellers. Investors dictate underwriting rules, and their instructions could not be more clear. Show no mercy. Punish the borrower who defaults. Make it difficult for them to do it again.

Waiting for Guido

Mortgage money belongs to people who expect to be paid back. Layoffs, health problems, and job transfers are the borrower?s problem. If the market takes a turn for the worse, the borrower needs to figure out how to make the payments until things improve. If the investor is dragged in to the mess by a short sale or deed in lieu of foreclosure, Guido will be paying a visit. He may leave your knees intact, but he won?t be so kind to your credit. And you won?t be buying a home anytime soon.

Short Sales vs. Foreclosures

Dale Says:
December 29th, 2006 at 7:46 am
You are kidding, right? A “savings” to a buyer of 236 per month? How can you possibly say your are saving the consumer money, when the other 30 year loan at least offers a portion of the payment to go to the principle. You know darn well as I do that people opt for the interest only loan to barely squeeze into a house they normally could not possibly afford. They move in, have a kid or two, finance a new vehicle or two, and all of a sudden they are stuck hardly able to pay the interest-only house payment because they filled their life full of other liabilities. Of course, this is not your problem, since you are only selling them the interest only loan. Why these types of loans are not outlawed is beyond me…but I’ll save that rant for another day.

Marc Says:
January 9th, 2007 at 12:07 pm
Hey Dale,

Again, I’m talking about creating affordable payments. As you say, there are a lot of people who buy houses they can’t afford using “exotic mortgages”. I advise strongly against this, and I’ve refused to do loans for clients when I could see that they could not afford the the future payments. Putting clients into that situation is bad for the everyone: the client, the investor, and for me. Nobody wins.

Fortunately, not every buyer is as irresponsible as you describe. There are those who’ve managed their finances responsibly and whose income might be temporarily low–one spouse laid off, a recent relocation, a young couple with degrees just getting started–such that there income will rise predictably, making the amortized payment entirely affordable.

When those kinds of folks need a way to buy with an affordable payment, interest-only loans work very well. An interest-only loans create the flexibility to give the payment a shape, but certainly not to help the borrower you describe. By the way, I primarily use 30 year fixed rate interest-only loans.

Thanks for taking the time to post.
Marc

CREATING AFFORDABLE PAYMENTS (PART IV): INTEREST ONLY LOANS

In Part II of the Creating Affordable Payments series, we looked at 40 and 50 year loans to see if the advertising claims about lower were true, and we found that these loans do not really help, and the overall interest cost is much higher.

In Part III , we looked at Intermediate ARMs to see if they were the answer to today?s most common challenge. Unfortunately, with the inverted yield curve in U.S. Treasury securities, the rate on a 5/1, 7/1, or 10/1 ARM is often higher today than the 30 year fixed.

So today let?s have a look at interest-only loans to see what they can do.

First, let me start with an observation based on personal experience. Most consumers believe that interest-only loans are bad. I rarely encounter a client whose mind isn?t already closed to the notion when the topic first arises. The press has done an effective job of scaring the consumer by associating interest-only loans with the real estate bubble and predatory lending. But interest-only loans?particularly the 30 year fixed variety?are wonderful financial planning tools, and they are safe. Read Four Great Reasons to Choose an Interest-Only Loan.

To keep to the point, interest-only loans are one of the most effective tools we have for safely creating affordable payments.

Here is a comparison of monthly payments for 30 year fixed and a 30 year fixed, interest-only loan:

30 year fixed, $300,000 @ 6.00% = $1799
30 year fixed, $300,000 @ 6.25% = $1562 (interest-only)
That?s a savings of $236 per month, a significant amount for a buyer in that price range. And that is despite the fact that there is generally a slight premium in the rate for any loan?s interest-only counterpart.

For any good mortgage advisor, a loan program is just a tool we use to do a particular job. An interest-only loan is a wonderful way to create flexibility and to shape the mortgage payment to better fit the client?s life. The borrower can decide later whether to catch up on principal or increase their pre-tax 401(k) contributions, but for the present, interest-only loans are one of our best tools for creating more afffordable payments.

Got a question about interest-only loans? Email me.

CREATING AFFORDABLE PAYMENTS (PART III)

3/1, 5/1, 7/1 and 10/1 ARMs

In Part I we laid the foundation by briefly looking at 15 and 30 year loans. These traditional products offer safety, security, and in the case of the 15 year, save a pile of money. What they don’t do well is to create affordable payments.

In Part II, we examined the heavily promoted 40 and 50 year loans to see what they’re made of. It turns out they’re more sound bite than substance. They do little to help lower payments and they are far more costly in the long run.

So now let’s look at the “intermediate ARMs”, also sometimes called 3/27, 5/25, etc.

Normally we find lower rates in this category–sometimes as much as a full percentage point lower–and that can help. Let’s continue our comparison of monthly payments.

15 year loan, $300,000, 5.75% = $2491 mo
30 year loan, $300,000, 6.00% = $1798 mo
40 year loan, $300,000, 6.25% = $1703 mo
50 year loan, $300,000, 6.50% = $1691 mo
10/1 ARM, $300,000, 5.75% = $1751 mo
7/1 ARM, $300,000, 5.50% = $1703 mo
5/1 ARM, $300,000, 5.25% = $1657 mo
3/1 ARM, $300,000, 5.00% = $1610 mo

That’s a little better. But remember I said “normally”. Well, these are not normal times. Mortgage interest rates mirror yields of U.S. Treasury securities, and right now the short term yields are about the same as the long term yields. Translated to mortgage rates, the intermediate ARM rates don?t offer a rate different than the 30 year fixed. Even if you plan to be in the home a short time, these choices don?t help with payments. .

So, in our quest for mortgage programs to create affordable payments, we’ll look next at the much maligned Interest Only loans, and we’ll see why they’re not so bad. Got a question? Need help with a loan? Send me an email or call. I’m happy to help; it’s what I do.

OCTOBER NEW HOME SALES

Has the real estate market hit the bottom?

Don’t bet on it. Despite the aggressive incentives offered today by builders, new home sales are slowing dramatically. According to the report issued today by the U.S. Census Bureau and HUD, October sales are 3.2% lower than last month and 25.4% off the October 2005 pace. As dramatic as these figures are, they actually understate the slowdown.

That’s because of the way the Census Bureau and HUD handle canceled sales contracts. You see, they consider a home sold when the “contract {is} signed or earnest money exchanged.” And when, as it so often happens these days, the buyer cancels a contract, those sales figures are not revised. “Since we discontinue asking about the sale of the house after we collect a sale date, we never know if the sales contract is canceled or if the house is ever resold.”

To compensate, the Bureau refrains from counting the sale a second time when the home is eventually resold. In other words, each home is counted only once. It all works out in the end says the Bureau. Fair enough. But in a market like ours with a lot of cancellations, that methodology makes things look better than they really are.

There are many who believe that the worst is over. I’d love to pop the cork, but it may be too soon to celebrate.

MEET CHRIS PETTERSEN

Vice President - SBA Division

TOP SBA PRODUCER IN WEST

From 1996 up through 2002 Chris has been the number 2 producer of SBA loans in the United States.

In 1999. 2000 and 2002, he was also the top SBA Producer in the U.S. Western Region.

FUNDED OVER 300 LOANS

Chris has successfully funded over 350 SBA commercial real estate loans since 1994.

His achievements led to his selection by Senior Management of U.S. Bank to author its SBA Division Corporate Mission Statement for the year 2000 National Sales Conference.

Before joining the SBA Division, Chris was a highly successful Industrial Real Estate Broker, closing over 250 commercial and real estate transactions. He achieved Active Membership status in the Los Angeles Association of Industrial Realtors in 1990.

A graduate of the A.B. Freeman School of Business at Tulane University, Chris is a proud member of that institution's Alumni Association.

SBA-COMMERCIAL REAL ESTATE.COM

THE BRAVE NEW REAL ESTATE WORLD

Do you feel the change coming?

No, I don’t mean the dramatic downturn in home sales and prices. To be sure, that storm is grabbing headlines and bringing heartache to many people.

But the howling winds on the surface mask another change, more profound and permanent. If you are still, you can feel the low rumble of tectonic plates shifting beneath our feet.

It’s the Internet. And it’s changing the way we buy and sell homes. Buyers no longer need a Realtor to research the market, shop for homes, or pre-qualify for a loan. Today, they can get the information they need on their own. According to industry experts, as many as 85% of all buyers now shop on-line long before they choose an agent or a lender. And incubation periods can run as long as 18 months. Information is power, and buyers are in control.

But it’s more than that. While almost everyone seems comfortable clicking around the Internet these days, the next generation of buyers are comfortable using HTML and CSS to create blogs and customize their MySpace page. They have grown up with the Internet and computers. Everything from how they stay in touch to how they buy homes will change.

I recently helped promote a home buyer’s seminar with a couple of agents who years ago had built a business this way. Although we put a modern twist on this old idea, we failed to get a single response. You can chalk that up to bad timing or a bad market. But when I told that story a few days ago to one of the young guys helping me with this blog, he chuckled, “why would anybody go to something like that ?”

His words still ring in my ears. So, can you feel it now? And more importantly, what are you doing about it?

CREATING AFFORDABLE PAYMENTS (PART II)

40 and 50 year loans

These days, a lot of clients ask about 40 & 50 year loans. The industry has advertised these as a way to create affordable monthly payments.

The idea sounds good. But do they fulfill that promise, or is this just another marketing gimmick? Let?s have a look.

In Part I, we watched monthly payments drop dramatically when we stretched the term of the loan from 15 to 30 years. Stands to reason then that the same thing would happen if we stretch a 30 to a 40 year term, right? Let?s do the math.

15 year loan, $300,000, 5.75% = $2491 mo
30 year loan, $300,000, 6.00% = $1798 mo
40 year loan, $300,000, 6.25% = $1703 mo
50 year loan, $300,000, 6.50% = $1691 mo

Does that surprise you? Stretching the term from 15 to 30 years saves $700 per month, but going from 30 to 40 years saves less than $100 per month. Going on to a 50 year loan would save only $12! If you?re hundreds of dollars away from a comfortable 30 year payment on that new house, then a 40 or a 50 year loan won?t make you twist and shout.

It gets worse. At this point, 50 year loans are offered mainly by ?subprime? lenders at much higher interest rates than I used here. I could probably end right here, but let me at least give you the total interest figures for the 40 year loan before I do.

15 year loan = $148,421
30 year loan = $347,515
40 year loan = $517,545

So what do you think? Effective tool for creating more affordable payments or marketing gimmick? In Part III we?ll look at the 3/1, 5/1, 7/1, and 10/1 ARMs, a place where we can normally get some real help.

If you have a question or need help with a loan, email or call. It’s what I do.

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CREATING AFFORDABLE PAYMENTS (PART I)

15 and 30 year fixed rate loans.

Creating affordable payments is one of today’s biggest challenges. Home prices have risen faster than incomes. We qualify more people today than ever, but payments are often still just too high. There are lots of ways to create affordable payments, but the sheer number of loan programs causes confusion and often leads to poor decisions.

When affordable payments are the issue, I like to start by giving clients a simple way to clarify the choices and understand the trade-offs. This is the first in a series of posts that follows that conversation.

First, imagine we draw a horizontal line on a piece of paper. We’re going to place conventional loans along this line from left to right starting with the highest payments. The 15 year loan would be first with the 30 year just to the right. Make sense? The shortest payback period creates the highest monthly payment. Now let’s use actual numbers to compare monthly payments.

15 year loan, $300,000, @ 5.75% = $2491

30 year loan, $300,000, @ 6.00% = $1798

The 30 year payment is about $700 less! You probably noticed that the rates are different. Lenders charge more to borrow the money for a longer term. We’ll see that again when we get to 40 and 50 year loans.

Now let’s compare total interest paid over the life of the loan.

15 year loan = $148,421

30 year loan = $347,515

We notice right away that the 30 year loan costs $200,000 more! If you guessed that that all happens in the second half of its life, you’d be wrong. The 30 year actually costs over $88,000 more in interest during the first 15 years than does the regular 15 year loan. That’s what made the 15 year a popular traditional choice. When you’re buying your last house and can afford the payments, it’s a great way to save a pile of dough. But first time buyers can’t afford the higher payments. And we’re looking for ways to get you into the game now.

In Part II of Creating Affordable Payments you’ll learn the truth about 40 and 50 year loans. Got a question or need help with your loan. Email me. It’s what I do.