I just found this on my old laptop, and found it both amusing and prophetic.
I'll let you decide how "on the money" I was!
"All Real Estate is an Investment.
People buy and sell Real Estate for any number of reasons. However, the deciding factor is always the financial commitment that property represents.
The nicest home in the world won’t sell if no one is willing to pay the asking price.
If the price is right, someone will buy the most run down of properties.
Why? Because that decision is based on the future perceived value of the property.
However, Real Estate Investment can be a risky venture without a strategy geared towards the current market conditions.
I specialize in helping people develop, and implement, wealth accumulation strategies based on Residential Real Estate properties in the Phoenix Arizona area.
The Phoenix Investment Property market is a dynamic one. Last year's strategy of “fix and flip” will not work in today’s market. Today the focus needs to be “buy and hold”.
Which means finding Renters for your Investment Property, and making it an Income Property.
Today’s market is perfectly suited for this strategy.
Let’s look at some facts:
During the housing boom in 2005, many people purchased properties at highly inflated prices. They financed these homes with risky, Adjustable Rate Mortgages, or Interest Only financing. There is nothing inherently wrong with either of those financing options, in some cases, they are the best option. However, they are both based on the premise that the market will continue to appreciate. It did not. The majority of these loans had two year caps that are now about to expire. Home owners are now looking at drastic monthly mortgage payment increases. Because of the drastic drop in home values, these owners cannot refinance to get out of their current mortgages. This is creating a situation where Properties are being sold in “Short Sales” at lowered prices to avoid foreclosure.
Anyone with good credit, and cash reserves, can take advantage of these circumstances to build an impressive real estate portfolio.
I specialize in finding these properties, and work with a team of financial experts to arrange the safest, most advantageous terms possible. XXXXXXXXXX (Former company) is also one of the largest property management firms in the West Valley.
Let me help you become wealthy."
Obviously, having written that 2 1/2 years ago, some things have changed. Everything I wrote in this piece still applies, but the window of opportunity has begun to close. Granted, it's closing very slowly, but according to a report by ASU's W.P. Carey School of Business, the market here bottomed out in May of this year. And since, we've seen reductions in the number of days a property is on the market, and a rise (small, admittedly) in home prices.
Also, I not only can help you find Income Properties, but I can do the management of them myself!
Interested in putting together a Real Estate Portfolio? Give me a call!
Erin Goldbach
Designated Broker
Vanguard Platinum Realty
602 524 0186
Tuesday, October 6, 2009
Seller Carry Back: A good approach for you?
In this real estate market, and lending environment, the difficulty for some people isn't finding a home to buy, but getting the financing to buy.
People are coming up with some creative solutions, but one that has been around for many years is a little known, but very simple one: The Seller Carry Back (sometimes also referred to as "the seller holding the Note")
What is a Seller Carry Back? Simply this: The owner of a home, who owns the property free and clear, acts as the lender, and "lends" the buyer the money to buy the home.
Before I get into an explanation of what that means, let me clarify one thing. The Owners MUST own the home outright. It must be free of any mortgage. If it is not, then the situation becomes what is called "A Wrap", which is a more complex, though not undoable, situation.
The thing that confuses people the most about a Carry Back is the notion that the owner/seller is "lending" the buyer the money to buy the home. Obviously, no cash is actually transferred from the seller to the buyer.
The Title of the property is transferred from the Seller to the Buyer in exchange for a promissory note for the sales price of the home. The buyer agrees to make installment payments on the home at a specific interest rate, usually with a balloon payment due in a specific period of time. If you think about it, this is exactly what happens with a conventional loan, but the actual "loaned amount" is on paper only.
Why would a Seller want to do this? Why would a buyer??
The advantage for a Seller is the chance to make substantially more than just the sales price of the home. Imagine if you were a Seller, and you agreed to sell your home to a buyer on a Carry Back for the price of $120,000, at an interest rate of 6% in an amortized 30 year loan, with a balloon payment due at 5 years.
Sounds like gibberish, right? Its actually pretty simple. The Buyer is going to make you monthly payments, of principle and interest, at 6%, with the remaining principle balance due in 5 years.
So, what's the advantage?? Over the course of those 5 years, the Buyer is going to pay you almost $35,000 in interest, while they lower their principle to $112,000. That means, when they refinance the home to pay you the remaining balance, you didn't just make $120,000 off of the sale, you made $155,000 total!!!!!!!
That's Right!!! By carrying the loan, you made yourself an extra $35,000!!
So, what's the catch? What's the down side? The biggest downside is the buyer not paying, and then you have to foreclose on the property. And depending on the condition the buyers leave the home in, that may be a big risk. Another risk is that at the time the balloon payment is due, the buyers may not qualify for a mortgage, or the property may not appraise for the value.
These things to consider, and there are safeguards that can be put in place to avoid, or limit these risks.
Why would a buyer want to purchase a home through this means?
The real estate market over the last 2-3 years could be summed up by saying "Bad things happen to good people". Or, as a lawyer friend of mine likes to say, "Bad luck happens".
Many people who have lost their homes due to the market and the economy are people who in other conditions would be qualified buyers. They're people who need some time to get their feet back underneath them financially, and might not need too long to do so. These are the people who can be good candidates for a Carry Back.
The advantage to these buyers is that they get to buy a home when they can't qualify for a conventional loan, and enjoy all the benefits of home ownership while repairing their credit. People who have sold homes in short sales are primarily the people who fit in this category. A short sale does impact your credit, but for a shorter period of time than a foreclosure, typically less than two years. So, a carry back with a 3 or 5 year balloon would be an ideal means for them to get back into a home, while giving them a great shot at refinancing when they're able.
And there are other variables that can make this more attractive to the Seller. Currently, the minimum down payment required for an FHA loan is 3.5% of the sale price. On $120,000, that's $4,200. There's no reason that a Seller can't require a down payment on a Carry Back as well, so there's the possibility of an up-front lump sum payment, be it a 3, 5, or even 10% down payment. And many buyers would jump at the chance to purchase a home under those conditions!
Carry Backs are a very attractive option, under pretty specific conditions, but they have the possibility of bringing a Seller a handsome return for (in my opinion) a fairly low risk.
If you have any questions about Seller Carry Backs, as either a seller or buyer, don't hesitate to email, or call me!
Erin Goldbach
Designated Broker
Vanguard Platinum Realty
602 524 0186
Erin@ErinGoldbach.com
Monday, October 5, 2009
Some simple rules for investing
Thinking about investing in the Phoenix market? Here are some simple suggestions:
Rule #1: Leave your ego at home, this is not about you. It’s about your money. What do I mean by that? Simply this, 99% of the properties on the market are bank owned right now. As an investor, you’ll be one of hundreds of people vying for these properties, and the banks don’t care what the name on the purchase contract is, as long as the numbers are what they want. If the numbers are right, you’ll get the property. That’s the only thing that matters. Your last name, how nice a person you are, how fair you think your offer was, these things do not matter.
Rule #2: Cash means nothing. Let me repeat that: CASH MEANS NOTHING.
There is no real advantage to sellers for them to accept a cash offer over a conventional loan offer. No one is walking around with suitcases of cash, and even if they were, the sellers (the banks) have procedures that don’t speed up for anything (banks have one speed: slow, and at their pleasure). So the myth that a cash offer can close more quickly is just that, a myth. And in an environment like what we have now, where a decent condition property is getting 6, 10, 14 offers in a few days, the idea that cash will give you advantage is ridiculous, especially when they’ve got more than one cash offer.
Rule #3: Ask yourself what you intend to do with the property once you’ve purchased it. Do your intentions match market conditions? There are two basic scenarios when you’re talking about investment property A) “fix and flip” , this is when you buy a distressed property, rehab it, and sell it for top dollar. B) “buy and hold” this is buying an undervalued property, possibly, though not necessarily needing rehab, putting tenants in it, and holding onto the property for multiple years until market value has increased.
Right now, the market we’re in is more conducive to “buy and hold”, although there is still opportunity for a “fix and flip” strategy. But which is more appropriate for your goals?
Rule #4: Keep your emotions out of it. People tend to get emotionally invested in the properties they buy, understandably so. Once you’ve put time and energy into purchasing the property, refurbishing it, and possibly owning it for a period of years, it is very easy to develop an emotional attachment to a property, rather than keeping the investment aspect in perspective. You’ll save yourself from a lot of potential heartache if you remember that these properties are investments, nothing more.
Rule #1: Leave your ego at home, this is not about you. It’s about your money. What do I mean by that? Simply this, 99% of the properties on the market are bank owned right now. As an investor, you’ll be one of hundreds of people vying for these properties, and the banks don’t care what the name on the purchase contract is, as long as the numbers are what they want. If the numbers are right, you’ll get the property. That’s the only thing that matters. Your last name, how nice a person you are, how fair you think your offer was, these things do not matter.
Rule #2: Cash means nothing. Let me repeat that: CASH MEANS NOTHING.
There is no real advantage to sellers for them to accept a cash offer over a conventional loan offer. No one is walking around with suitcases of cash, and even if they were, the sellers (the banks) have procedures that don’t speed up for anything (banks have one speed: slow, and at their pleasure). So the myth that a cash offer can close more quickly is just that, a myth. And in an environment like what we have now, where a decent condition property is getting 6, 10, 14 offers in a few days, the idea that cash will give you advantage is ridiculous, especially when they’ve got more than one cash offer.
Rule #3: Ask yourself what you intend to do with the property once you’ve purchased it. Do your intentions match market conditions? There are two basic scenarios when you’re talking about investment property A) “fix and flip” , this is when you buy a distressed property, rehab it, and sell it for top dollar. B) “buy and hold” this is buying an undervalued property, possibly, though not necessarily needing rehab, putting tenants in it, and holding onto the property for multiple years until market value has increased.
Right now, the market we’re in is more conducive to “buy and hold”, although there is still opportunity for a “fix and flip” strategy. But which is more appropriate for your goals?
Rule #4: Keep your emotions out of it. People tend to get emotionally invested in the properties they buy, understandably so. Once you’ve put time and energy into purchasing the property, refurbishing it, and possibly owning it for a period of years, it is very easy to develop an emotional attachment to a property, rather than keeping the investment aspect in perspective. You’ll save yourself from a lot of potential heartache if you remember that these properties are investments, nothing more.
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