Benefits Of An ARM Loan Program - Part 1

Happy Monday to you all!

I've received many inquires on the many loan programs available out there and I just want touch on the one that most people inquire about - the ARM loan.

There many flavors to this type of loan, so what I'm going to do is make it a sort of mini series for the next few days.

Part 1 is basically the benefits and main features of an ARM loan program:

An ARM allows you to receive more money at a lower interest rate than a fixed rate loan. If you are planning to move within a few years, you can save money and avoid rising payments.

Many investors choose adjustable rate mortgages on houses they will be rennovating for resale. The lower start rate means a lower monthly payment and increased cash flow. Many investors plan to resale the house in a short period of time so rate adjustment isn't an issue.

Adjustable Rate Mortgages start out with a lower payment than fixed rate mortgages, with the possibility of adjusting higher in the future if interest rates rise. This can be beneficial if you want the lower payment now, but expect your salary to increase in the future.

If you would like to lower your monthly mortgage payment to be able to apply more money in other places of your life an ARM loan may be right for you. An ARM loan should provide you a much better interest rate than a fixed rate loan, therefore giving you a lower payment each month. This in turn will free up some money each month in order for you to use the money where it is needed more at this time.

If you only plan on being in your home for a short period of time, then an ARM can be advantageous to you. If you know you will only be in the home for 3-5 years, then you would be better off taking a 5 year ARM. The lower interest rate that it offers will save you hundreds of dollars while in the home.

When considering an ARM loan you should take into consideration your lifestyle and future goals. ARM loans can benefit you with the reduced interest payments because of a lower interest rate which will allow you to invest more money into principal reduction and other valuable investments.

The fixed interest rate portion of an ARM can be as short as the first month of the loan, or be fixed all the way up to the first 10 years of the loan. Depending on how long you are going to be in the property you can choose an ARM . Each ARM also has different guidelines regarding how much the the interest rate can fluxuate at each adjustment, and what the lifetime maximum and minimum interest rates are for the loan. If you think that you are likely to see the adjustment period you should look at these numbers since they will control how quickly your payments can go up or down.

Tomorrow Part 2 - Option ARMs

Bay Area Home Builders Slashing Prices!

Home builders, who have been riding the crest of the housing wave for much of the past decade, now find themselves in the trough.

With many more houses on the market than there are buyers for them, builders are slashing prices and offering perks from free granite countertops and hardwood floors to paid vacations to Hawaii.

In Sacramento, Centex Corp. has slashed home prices by about $100,000, bringing down the average price of its new homes to less than $400,000.

Meanwhile, in eastern Contra Costa County, Pulte Homes is trying to get sales moving by dangling vacations to Hawaii and New York to those who purchase homes in the developer's Magnolia Park project in Oakley.

If that were not enough, developers are also fighting cases of jitters from a growing number of buyers who are canceling purchases, thus forcing them to sell homes twice.

As of September there were 19,187 newly built condos, townhouses and single-family homes in the nine Bay Area counties without buyers, according to Hanley Wood, a real estate consulting firm. That's more than a 41 percent jump from 13,591 units in September of 2005.

Although the aggressive promotions are beginning to make a dent, builders say it's going to take at least another year before the market recovers.

"My gut tells me it's going to take us all or most of 2007 to chew through some of these issues," said Steve Delva, president of the South Bay division for Standard Pacific Homes. "Unfortunately, a lot of the answers to some of these housing issues only get solved by time."

Builders are under pressure to sell homes as soon as they are complete to lower their operating costs, pay off loans and, in the case of public companies, keep shareholders happy.

And shareholders are decidedly unhappy. The Bloomberg U.S. Homebuilders' Index, which tracks stocks of 18 of the country's largest builders, is down 25.3 percent this year.

So builders, unlike owners of existing homes, are more willing to take a hit to move a home.

"We'd rather take a lower return -- or no return -- to get that capital back in the door and reinvested," said Steve Kalmbach, president of Pulte's Bay Area division. "We cannot sit on standing inventory."

New homes typically see the biggest drop in prices during a down market because builders don't have the luxury of waiting months to find a buyer willing to pay the asking price, said Leslie Appleton-Young, chief economist for the California Association of Realtors.

While the median price of an existing single-family home actually rose a modest 1.1 percent to $653,000 in September from a year earlier, the price of a new home plunged 12.3 percent to $584,000.

The number of new-home sales fell 22 percent.

"For builders, an unoccupied housing unit is inventory that needs to be moved quickly because it's impacting their bottom line," Appleton-Young said.

Exactly what goodies builders are offering and how much of a discount they're willing to negotiate varies dramatically around the Bay Area.

The market is strongest in the South Bay, where developers say they are offering few, if any, price breaks.

A strong resurgence in the technology sector and solid job growth in Silicon Valley are driving continued demand for new homes. "You have higher household income and not as much supply on the market in the South Bay," Pulte's Kalmbach said.

Meanwhile, the decline in new- home sales in the Bay Area has been apparent in Contra Costa County, where the price of a new home fell 20.5 percent from $717,000 to $570,000 between October 2005 and October 2006, according to DataQuick.

The problem is especially noticeable in the eastern parts of the county in such cities as Oakley and Brentwood, which saw a sharp increase in new-home building during the four-year run-up in the real estate market.

At Pulte's Magnolia Park development in Oakley, a 400-home project that includes three communities, the builder is offering a free vacation, footing the bill for a hotel and airfare for two, to such destinations as Hawaii and New York.

The homes in Magnolia Park range from $485,900 to $745,900, according to the company's Web site.

The promotion follows a region-wide Pulte sales blitz that ended in October, which offered a package of givebacks to buyers worth as much as $99,000 at the developer's priciest community, Verona in Dublin, where homes start at $1.12 million.

That promotion led to the sale of 250 homes, according to Kalmbach. "A lot of buyers come in and if there's not an incentive, they're asking themselves what the motivation is to step forward," he said. "We had a huge month of sales both in September and October."

Developers have also been struggling with a rising number of cancellations as potential buyers decide to forgo their deposits and walk away.

"People sign up and find out they can't qualify," said Standard Pacific's Delva. "Some people just say, 'We're too nervous and we're going to wait and see.' "

The cancellation rate for Standard Pacific's South Bay division -- which includes San Jose, Monterey, Hayward and Fremont -- is about 25 to 30 percent, Delva said. In a normal market, buyers bail out at a rate of 10 to 15 percent, he said. Last year, the cancellation rate was less than 10 percent.

Toll Bros Inc., the luxury home-builder with projects in San Ramon, Dublin and Sunnyvale among other Bay Area locations, cited a high number of cancellations in Northern California when it reported this month that homebuilding revenue fell 10 percent in the third quarter.

Most of the time builders simply take a home that has fallen out of contract and put it back on the market. Reselling a home that has been built with unusual custom touches -- Delva gave the example of lime green walls and a purple carpet -- can be trickier.

Still, the extent of cancellations, price cuts and incentives in the Bay Area market is far less than in other parts of California, such as Sacramento, and many other cities around the country, said Keitaro Matsuda, senior economist at Union Bank of California.

"Our economic fundamentals are stronger and the amount of excess supply is much, much smaller," Matsuda said. "That tends to be the case because it is much harder to get permits and start building something here."

That's not the case in Sacramento, where developers say that price cuts have been much more dramatic than anyplace in the Bay Area.

The average price of a home area has fallen by about $100,000 to the high $300,000-range at Centex Homes developments in Sacramento, said John Ochsner, Centex's executive vice president of the Northern California region.

"Buyers over there are demanding price reductions and incentives and we're responding to that," Ochsner said. "We're backing off on our starts because we do want to control our inventory there. Buyers have all the power at the moment."

Ochsner said that Centex's incentive programs include giveaways of granite countertops and hardwood floors. His company has not offered free trips or similar promotions, he said.

Like Centex, builders across the state are responding to the down market by cutting construction.

Statewide, just 6,727 permits were issued to build single-family homes in September, down 57 percent from the previous year. That's the fewest number of permits issued in the month of September in a decade, according to the Construction Industry Research Board.

At the national level, the Commerce Department released October statistics on Friday. New-home construction plunged to the lowest level in more than six years.

The decline, a sharp 14.6 percent from September, was the largest percentage decline in 19 months and pushed total activity to the lowest level since July 2000.

Nationwide, applications for new building permits, seen as a good sign of future plans, fell for an eighth consecutive month, declining 6.3 percent to an annual rate of 1.535 million units.

New-home construction wanes dramatically during housing market downturns because it's the only mechanism that the market has for allowing demand to catch up with supply, said Matsuda, the Union Bank economist.

"When the housing demand drops, people don't go around knocking down existing homes," he said. "It's always the new home segment that has to make the adjustment."

Even with the slowdown, builders still have projects in the pipeline that are entering the market.

Instead of offering incentives for their newest homes, builders say, they are simply asking for less money.

Standard Pacific is opening projects in Hayward, Palo Alto, Sunnyvale and Fremont in the coming months. "We're starting at lower price ranges than we would have expected six months ago," Delva said.

Flipping Real Estate

By William Bronchick

"Flipping" is the buzzword of the year in real estate: Flipping books, flipping articles in the newspaper, and even flipping shows on TV! What is flipping, how does it work, and how you can profit?

Flipping Real Estate simply means buying a property and reselling it quickly, as opposed to holding on to a property long term as a rental. Flipping comes in several varieties, most of which are legal and profitable, some of which are not.

Flip Strategy #1: Buy, fix, and flip

Let's start with the most common form--the good, old "fix ‘n flip." This involves buying a property that needs work, fixing it up, then selling on the "retail" market, that is, to a person who will live in the house.

This method is tried and true and works very well. You can easily make $15,000 to $50,000 on one deal, depending on your market and how good you are at finding bargains.

The danger in fix and flips is either paying too much or underestimating repairs. Be very conservative in your fix-up costs and length of time it may take to resell. Also, make sure you consider the cost of paying a real estate agent to sell the property.

Flip Strategy #2: Buy, refinance, and lease option

Rather than sell the fixed up property for all cash, sell for terms. Once you have completed the rehab, refinance the property at its new appraised value. If you did the math correctly, you should have little or no money in the deal. Sell the property on a lease with option to buy.

The rent payment from your tenant/buyer should cover your mortgage payment. (If not, consider an interest-only or adjustable rate loan that is fixed for three years.)

When your tenant exercises his option, you reap a larger profit, since you don't have to pay a broker's fee. If the tenant exercises his option after twelve months, you benefit from a lower capital gains tax rate.

Flip Strategy #3: Buy and flip "as is"

Don't like to do fix-up work? Consider selling the property "as is" as a light fixer upper. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market.

This is especially the case with houses in "transitioning" neighborhoods. Make sure, of course, that you acquire the property cheap enough that you can sell it below market quickly and still profit.

Flip Strategy #4: Wholesale

Strategy #1, the fix and flip, is very popular, which means there are a lot of investors looking for rehabs. You can buy the property cheap and sell it for just a few thousand dollars more to another investor without doing any work. You won't make nearly as much as the rehabber, but you will realize your profit quickly.

Flip Strategy #5: Pre-construction

In very hot real estate markets, prices are appreciating as much as 2% per month. If you time things right, you can put a contract on a pre-construction house or condominium, then flip it to someone else when the development is complete.

If it takes 12 months for the development to be complete, and the condo price is $500,000, you could make $100,000 or more in one year! Of course, the opposite is also true. You could end up losing money if the local economy tanks and you end up with a worthless condo that you can't sell for more than you paid. Use this approach very carefully…

Flip Strategy #6: Scouting

The Scout is an information gatherer, so not technically a property flipper. He is the "bird dog" who finds potential deals and sells the information to other investors. Many people get started as a Scout for other investors because it does not take any cash or prior knowledge to look for distressed properties.

The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee. The fee will vary depending on the price of the property and the profit potential. The Scout can expect to make $500 to $1,000 each time he provides information that leads to a purchase by another investor.

Flip Strategy #7: Illegal flipping

Okay, I am NOT advocating this approach because it is illegal. Illegal property-flipping schemes work as follows: Unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices.

In most cases, the investor, appraiser, and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan.

Since many of these loans are federally insured, the government authorities have investigated this practice and arrested many of the parties involved. As a result, the public perceives is flipping to be illegal.

The fact is, "flipping" (as I described in the beginning of this article) is NOT illegal. Loan fraud in the process of flipping is what is illegal. So don't confuse the two. The other six ways to flip are very legal, very ethical, and very profitable!


"This article is reprinted here with permission from
Creative Real Estate Online at http://www.creonline.com"

New Homes Decline, But Median Price Rises

New-home sales resumed declining in October, but the median price increased.

Meanwhile, the U.S. economy was stronger last summer than first thought because businesses accumulated more inventory and trade was less of a drag. Gauges measuring third-quarter inflation were lowered slightly, according to Wednesday's data revisions.

Sales of single-family homes decreased by 3.2% to a seasonally adjusted annual rate of 1.004 million, the Commerce Department said Wednesday. September sales climbed 3.7% to 1.037 million, revised from a previously estimated 5.3% advance to 1.075 million. Sales increased 2.1% in August but fell 9.2% in July.

Related Links Join a reader discussion on the U.S. housing market.

The average price of a new home increased to $309,700 in October, up from $297,700 in September and $293,600 in October 2005, according to Commerce. The median price also rose, up to $248,500 last month from $218,200 in September and $243,900 in October 2005.

The sales numbers Wednesday were worse than what Wall Street expected. The median estimate of 23 economists surveyed by Dow Jones Newswires was a 2.3% decrease to an annual rate of 1.050 million in October.

Year-to-year, sales were down 25.4% since October 2005 as the housing market softens. Yet, in a glimmer of hope, the National Association of Realtors reported Tuesday sales of previously owned homes rose in October for the first time in eight months; still, year over year, sales were 11.5% lower.

New-home inventories receded in October. There were an estimated 558,000 homes for sale at the end of the month, the Commerce data Wednesday showed. That represented a 7.0 months' supply at the current sales rate. An estimated 562,000 homes were for sale at the end of September, a 6.7 months' inventory.

Financing costs drifted down in October. The average rate on a 30-year mortgage was 6.36%. It was 6.40% a month earlier -- yet 6.07% in October 2005.

By region, new-home sales last month fell 1.7% in the South, 5.6% in the Midwest and 39.0% in the Northeast. Demand was 3.2% higher in the West. Based on figures unadjusted for seasonal factors, an estimated 77,000 homes were actually sold last month in the U.S., down from 82,000 in September.

GDP Revised Up

Gross domestic product increased at a 2.2% annual rate July through September, the Commerce Department said Wednesday in its first revision to third-quarter 2006 GDP. The government initially estimated growth at 1.6%.

GDP has weakened as the housing slump weights down the economy. Second-quarter growth was 2.6% and GDP raced ahead at a 5.6% pace in the first three months of 2006.

The government's price index for personal consumption increased 2.4%, lower than the previously estimated 2.5% climb but below the second quarter's 4.0% rise. The PCE price gauge excluding food and energy increased 2.2%, lower than the previously estimated 2.3% climb and below the second quarter's 2.7% rise.

Corporate profits after taxes climbed 4.6% to $1.167 trillion in July through September from the second quarter, the report showed. In the second quarter, profits increased 0.3%. Year-to-year, profits surged 31.5% since the third quarter of 2005.

Revisions to inventories and imports were behind the adjustment to GDP, which is a measure of all goods and services produced in the economy. Wall Street expected a smaller upward revision to third-quarter GDP; the median estimate of 22 economists surveyed by Dow Jones Newswires was a 1.8% increase.

The revisions released Wednesday showed businesses increased inventories by $58.0 billion; originally, Commerce estimated a $50.7 billion increase. Companies had lifted stocks $53.7 billion in the second quarter.

The accumulation of goods added 0.16 percentage point to third-quarter GDP. Originally, Commerce said inventories subtracted 0.10 percentage point from GDP. Real final sales of domestic product, which is GDP less the change in private inventories, climbed 2.1%. The original estimate was a 1.7% increase. Second-quarter sales also rose 2.1%.

International trade was less of a restraint on GDP because imports didn't climb as much as first thought, according to the revised data. U.S. exports rose by 6.3%. Imports increased 5.3%. Originally, exports were seen up 6.5% and imports 7.8% higher. So, trade reduced GDP by 0.21 percentage points; initially, Commerce said trade cut third-quarter GDP by 0.58 percentage points. In the second quarter, exports had gone up by 6.2% and imports climbed 1.4%.

Residential fixed investment, which includes spending on housing, plunged by 18.0% in the third quarter, a bigger drop than the originally estimated 17.4%. Second-quarter spending tumbled 11.1%. The 18.0% drop translated to a cut of 1.16 percentage points in third-quarter GDP, and it marked the sharpest fall since 21.7% in the first quarter of 1991.

Businesses increased third-quarter spending more than previously thought. Outlays rose 10.0% July through September, higher than the originally estimated 8.6% advance. Business spending rose 4.4% in the second quarter. Third-quarter investment in structures surged 16.7%. Equipment and software increased 7.2%.

Third-quarter spending by consumers increased 2.9%, down from a previously reported 3.1% but above the second quarter's 2.6% advance.

Consumer spending accounts for the lion's share of economic activity -- about two-thirds. It contributed 1.99 percentage points to GDP in the third quarter; the original estimate was a contribution of 2.13 percentage points.

Purchases of durable goods rose 6.0% in July through September, below the previously reported 8.4% increase. Durables dipped 0.1% in the second quarter. Durable goods are expensive items designed to last at least three years, such as cars. Third-quarter non-durables spending increased by 1.1%. Services spending went 3.1% higher.

Federal government spending increased by 1.5%, revised down from an initially estimated 1.7% increase. Second-quarter spending fell 4.5%. State and local government outlays increased 2.6%.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose 2.1%, up from a previously estimated 2.0% climb but below the second quarter's 4.0% rise.

The chain-weighted GDP price index rose 1.8%, unchanged from the first estimate but below the second quarter's 3.3% rise.

Top 10 Metro Foreclosure Rates

RealtyTrac

Elevated foreclosure rates could be coming to a city near you.

Nationwide, 318,355 properties entered some stage of foreclosure during the third quarter of 2006, a 43 percent increase from a year ago and a foreclosure rate of one new foreclosure filing for every 363 households, according to RealtyTrac, an online marketplace for foreclosure properties.

Many cities documented foreclosure rates well above the national average. Leading the foreclosure rate charge were Detroit, Fort Lauderdale and Denver. Completing the top 10 were Miami, Dallas, Indianapolis, Fort Worth, Atlanta, Las Vegas and Memphis. Analysts attribute the sharp increase in foreclosures to higher interest rates, a softening real estate market and the upward adjustment of a large portion of adjustable-rate mortgages taken out in the last few years by many American borrowers.

"In the next 15 months, more than $1 trillion in loans are due to adjust upward," said James J. Saccacio, chief executive officer of RealtyTrac. "With such a large volume of these loans set to increase, it is a trend that definitely bears watching."

Top 10 Cities

Many experts believe the real estate slump could get worse before it gets better. On the other hand, a slow housing market with a glut of foreclosures presents more opportunities for buyers and investors to find bargains and profit from those bargains - if they have the patience to buy and hold. Here's a look at the Top 10 foreclosure cities.

Top 10 Metro Foreclosure Rates - Q3 2006

Metro Area	% of Households in Foreclosure	# Households for Every Foreclosure	Foreclosure Rate to National Average
1. Detroit, MI	1.25%	80	4.5
2. Fort Lauderdale, FL	1.14%	88	4.1
3. Denver, CO	1.11%	90	4.0
4. Miami, FL	1.10%	91	4.0
5. Dallas, TX	1.01%	99	3.7
6. Indianapolis, IN	1.00%	100	3.6
7. Fort Worth, TX	0.99%	101	3.6
8. Atlanta, GA	0.94%	107	3.4
9. Las Vegas, NV	0.87%	115	3.2
10. Memphis, TN	0.70%	144	2.5
% of Households in Foreclosure: Total foreclosures divided by the total households in a metro.
# of Households Per Foreclosure: Total households divided by the total foreclosures in a metro (a.k.a. "Foreclosure Rate").
Foreclosure Rate to National Average: Foreclosure rate in a metro divided by the national average foreclosure rate.

No. 1: Detroit, MI

Detroit's foreclosure rate of one new foreclosure filing for every 80 households was more than 4.5 times the national average. Job losses in the automotive manufacturing sector, a sluggish economy, falling home values and upward-adjusting mortgages are pushing more Detroit homeowners into foreclosure. Detroit automakers and suppliers are cutting thousands of jobs as part of a massive industry restructuring, leaving thousands of laid-off or underemployed Michigan residents swimming in red ink.

And with the auto industry showing no sign of recovery, the future looks bleak for Detroit. The city has lost about 100,000 jobs in the last five years, and total employment is expected to continue to decline until the end of the decade, according to a recent report by Moody's Economy.com.

No. 2: Fort Lauderdale, FL

Fort Lauderdale's foreclosure rate ranked second highest in the nation among major metropolitan areas, with one new foreclosure filing for every 88 households - more than four times the national average.

Like the rest of the nation, the Sunshine State is experiencing a cooling economy, plus rises in property insurance premiums and interest rates. These factors have made it tougher for South Florida homeowners to keep up with their house payments.

South Florida real estate agent Bill Gardner said a lot of properties are sitting on the market unsold because the sellers have financed their properties at 100 percent of what the properties are worth, leaving the sellers no room to reduce their asking price. These sellers are more susceptible to default or foreclosure, especially since investors are now more cautious about sinking money into the housing market.

"Most of the people who are buying now actually need a place to live. And I think all of the investors are kind of pulling out of the market," Gardner said. "My only sales I am making are with people who want to occupy. The properties that are selling are the ones that are under-priced."

No. 3: Denver, CO

Two years ago, the metro Denver region was one of the hottest housing markets in the country. Houses sold in one day for full price. Today, foreclosures are so high in Denver that the state just set up a first-of-its-kind foreclosure help hotline. The hotline received 1,400 calls on the first day.

The Denver region posted the third highest foreclosure rate among the country's 100 largest metropolitan areas during the third quarter of 2006. One out of every 90 households in the metro area entered some stage of foreclosure during the quarter, compared with one out of 363 households nationally. Broad economic factors - such as a housing surplus, stagnant prices, layoffs and the heavy use of adjustable-rate mortgages and interest-only mortgages - contributed to Denver's growing number of foreclosures.

No. 4: Miami, FL

Miami ranked fourth, with one new foreclosure filing for every 91 household, although many of the properties entering into foreclosure in South Florida do not move through the entire process. Steep rises in prices the past few years enable many owners to sell out before losing their properties entirely.

Bill Gardner, the South Florida real estate agent, said buyers and investors should take advantage of the market while it lasts, which he doesn't believe will be for much longer.

"I think after the first of the year people are still going to want to move to Miami," he said. "Even though it's slower now, there are still bargains to be had and now is the time to buy.

"People looking for short-term gains, they missed that boat. But for the long haul it's still a good investment."

No. 5: Dallas, TX

Foreclosure postings in the Dallas area have surged in the past two years, and the city's foreclosure rate consistently ranks among the nation's highest. Interest-only mortgages have accounted for about 10 percent of mortgages in Dallas-Fort Worth this year, according to LoanPerformance, a San Francisco company that collects and analyzes mortgage data.

Stagnated income and rising property taxes have also contributed to the foreclosure spike occurring all over North Texas. More than 9,000 foreclosure filings were recorded in Dallas County during the third quarter of 2006, more than twice the number recorded in the third quarter of 2005.

Dallas real estate agent Jon Callaway said the prevalence of 100 percent financing is pushing many area residents into foreclosure.

"As long as 100 percent financing exists there will be an abnormal amount of people getting into financial troubles and unable to sell their home," he said. "The majority of the homes we see in trouble across the metroplex are 100 percent financing loans."

But Callaway believes the Dallas housing market is showing signs of recovery, an opinion supported by the fact that the area's foreclosure activity rose at a much slower pace than most of the other cities in the top 10.

"Investors from California, Arizona, Florida, Utah and eastern states are soaking up inventory, speculating we are going to be the next hot spot," he said. "I do see us pulling out of the stagnated market we have been in for the last five years and moving forward at a 5 to 7 percent appreciating pace."

No. 6: Indianapolis, IN

Like Detroit, Indianapolis is a big automotive industry supplier that has suffered economic setbacks, and falling home prices have made it more difficult for homeowners in jeopardy to bail out with some profit. Of the top 10 cities on the list only Indianapolis reported decreasing foreclosure rates, with a 2 percent dip from the previous quarter.

No. 7: Fort Worth, TX

In Fort Worth, the median price of a home sold in October - $143,000 - is down 3 percent from last year, according to the North Texas Real Estate Information System. Stagnated income and rising property taxes have contributed to the foreclosure spike occurring in Fort Worth and all over North Texas.

No. 8: Atlanta, GA

Atlanta ranked eighth in the country in foreclosure rate, reporting one new foreclosure filing for every 107 households - more than three times the national average.

"Mortgage fraud, liberal lending practices, and inexperienced investors, along with corporate layoffs and slashed pension funds are contributing causes for the high foreclosure rate," said Atlanta real estate agent Ken McCall.

No. 9: Las Vegas, NV

Experts say Las Vegas is outpacing the national rate as homeowners succumb to rising adjustable interest rates. Some homeowners who bought with no down payment now owe more than their homes are worth. And the foreclosure rate in Las Vegas shows no signs of slowing, with some predictions it could triple in the next six to nine months. One-third of the homes bought in Las Vegas in 2004 and 2005 were purchased using adjustable-rate mortgages. And as mortgage payments increase sharply for those with adjustable rate mortgages, the city's foreclosure rate could continue to rise by the end of the year and in early 2007.

No. 10: Memphis, TN

Memphis rounded out the Top 10 list with a foreclosure rate of one new foreclosure filing for every 144 households. The city's foreclosure rate was more than 2.5 times the national average and was up 2 percent from the previous quarter.

Memphis broker Tommie Criswell-Jones said foreclosures are present for a variety of reasons, including high-ratio loans, bankruptcy frequency, poor underwriting and mortgage fraud. She said Memphis ranks No. 8 in the country for mortgage fraud.

Criswell-Jones noted that the Memphis market is "slow and steady" and has not seen the dramatic increases in home prices in recent years. She cited strong consumer confidence and recent corporate relocations as factors that will help create a more balanced housing market in the near future.

"Sections of our MLS area have higher inventory than demand, but in those areas sales are still considered strong," she said. "We expect to see the local housing market adjust somewhat in line with the national trends, with a gentle slowdown in new home starts. We expect a more balanced market with sellers and buyers, and sales are expected to be at or slightly above 2006."

Distressed Real-Estate:Priced to Sell in 2007

As a weak housing market nudges the foreclosure rate higher, next year is looking promising for investors in distressed real estate.

So far, the U.S. housing slump hasn't produced a bonanza for such investors, but lenders stuck with foreclosed property are becoming more inclined to slash prices or sell properties through auctions, industry experts say.

"We're all going to have to be more creative in the next 12 to 24 months" in selling foreclosed homes, says Chad Neel, president and chief operating officer of Fidelity National Asset Management Solutions, a unit of Fidelity National Information Services Inc., Jacksonville, Fla. Mr. Neel's company helps lenders manage and sell foreclosed homes.

Related Links Join a reader discussion on the U.S. housing market.

Williams & Williams Inc., a Tulsa-based auctioneer, says its sales of foreclosed homes will nearly double this year to about 5,060. Dean Williams, chief executive of the auction firm, expects another near doubling of sales in 2007.

Dallas-based Hudson & Marshall Inc. expects its auction sales of foreclosed properties to total about 4,800 this year, up 23% from 2005. David Webb, co-owner of the auction company, believes sales will rise at least 20% in 2007.

The auction firms say their busiest auction markets recently have included Michigan, Ohio, Indiana, Pennsylvania, Texas and Colorado. "Word on the street is that California, Florida and Arizona will also be very active in the next 12 months," Mr. Webb says.

Lenders refer to foreclosed homes as REO, short for "real-estate owned." They generally try to sell REO homes as quickly as possible to minimize holding costs, such as those for insurance, taxes and lawn care.

In the first half of 2006, REO properties accounted for 3.1% of all U.S. home sales, up from 2.4% two years earlier, according to a study by First American Real Estate Solutions, a unit of First American Corp., Santa Ana, Calif. The study found that those homes sold at a median discount of 14% to their estimated value in the first half, compared with 12.5% two years before.

The discounts reflect the gap between the actual sale price for the homes and the value estimated by a computer model, which takes into account sales of comparable homes nearby and price trends.

It has taken a while for foreclosures to mount. The housing boom of recent years reduced foreclosure rates because most people who fell behind on their loans could refinance or quickly sell their homes for at least enough to pay off the loans. At the end of this year's second quarter, only about 1% of all home mortgage loans outstanding were in the foreclosure process, down from an average of 1.2% over the past decade, according to the Mortgage Bankers Association.

Doug Duncan, chief economist for the mortgage bankers, expects a modest rise in foreclosures over the next year or two. People with weak credit records who have taken out loans over the past year are falling behind on payments at a rapid clip, according to a recent report by mortgage analysts at UBS AG in New York.

Christopher Cagan, director of research and analytics at First American Real Estate Solutions, notes that REO sales are a lagging indicator of the housing market because at least a few months elapse between a borrower's default and the foreclosure. Dr. Cagan expects a modestly higher foreclosure rate and deeper discounts next year.

Discounts are likely to be larger in areas where inventories of unsold homes have soared, such as in parts of Arizona and Florida, Dr. Cagan says. Another big factor in determining demand for REO homes is local job and population growth.

In Los Angeles County, which has strong housing demand and an extreme shortage of space, the median discount on REO homes was just 1.7% in this year's first half. In Ohio's Cuyahoga County, where job losses have left a glut of empty homes, the discount was about 30%.
Most REO homes are listed by real-estate brokers and sold like ordinary houses. But lenders often turn to auctions when they see their REO inventories piling up.

Lenders that choose the auction route want to get "current market value, whatever it is, rather than sit on vacant property and speculate as to if or when it might sell," says Mr. Williams of the Tulsa-based auctioneer.

One recent buyer at a Hudson & Marshall auction was Warren Russell, who bought a 1,300-square-foot home in Detroit for just $1,500. Mr. Russell says the home is structurally sound but needs new windows, paint and some other items. He expects to spend about $10,000 renovating the home and then rent it out.

In considering purchases of foreclosed homes, Mr. Russell says, "you can't think, 'Would I live here?' There are people at every level of income that need a roof."

Real Estate Investing - Is It For You?

Judging from all the late-night-get-rich-real-estate testimonials, it seems like anyone can be a real estate investor these days with the proper know-how.


In my opinion, the know-how is important, but not the end-all-be-all when it comes to real estate investing. The late night night commericials that suck you in by telling you that you can get rich if you just "follow my system" is very alluring and appears to be downright EASY. Well, first of all, it's not easy, it can be simple (home is worth 100K, you buy it for 50K...hmmm, what now?), but it ain't easy. I've purchased many courses and books, and up until a few years ago, did absolutely NOTHING with the knowledge. Oh, but was I an expert when it came down to talking lease options and flipping and foreclosures? You bet! But, that was the extent of my real estate investing - sharing a wealth of information that I paid out of my nose for, but did nothing with.

Now before we get knee deep with this, let me preface my argument by saying, it would serve you best to know as much as possible about whatever real estate endeavor you decide to partake in, before you actually doing anything.

Real estate is big, BIG, money. You can make a lot of money in real estate (yes, sometimes relatively quick), but you can also lose your shirt and then some too if you don't know what you're doing. So again, yes, you do need to know what you're getting into and all the pitfalls.


Apart from knowing the ins and outs of real estate, there's a component of the successful real estate investor makeup that almost always gets no press. And that's what's between your ears.

Real estate investors have to have that certain mentality and attitude. And the mentality that I'm referring to is not common, but is definitely something that can be learned and cultivated.

I've read numerous books on more known real estate investors out there - Trump and Kiyosaki to name a few. And as different as they all are, they are very much similiar in their approach and mentality towards real estate investing.

On the surface, they appear to be about no BS and cut throat, and although there might be some truth in that, there are many more traits that are fueling their real estate prowness.


Here a few common traits that successful real estate investors share. If you're thinking about real estate investing, these are the traits that you need to cultivate and bring out in yourself.



1) Self Belief - Forget real estate investing - this is a requirement for ANYTHING you want to do in your life. But I want to clarify what I mean. It's one thing to have self belief in your real estate investing abilities, it's another thing to just have self belief, PERIOD. No matter what you do and no matter if you know the subject matter. Your attitude must be "I can learn that and I can do well with that" even before you dive in.


2) Willingness to take risks - First and foremost, lets change that to "calculated risks". Understanding, with the know-how of course, what you're getting into and weighing it out and then acting on it. Of course numbers can look unbelievable and scream "IT'S A DEAL", but if you don't have that "risk taking" mentality and attitude, you won't do a thing. And the main reason is fear. Fear has everything to do with the unwillingness to take risks, but like anything else, fear can either be used to hold you back or move you forward. You have to be willing to risk what you have now, to obtain what you want in the future. And not fear the consequences.


3) Wants/Desire- Desire a better car. Want a better house. Desire a better life. Want to be your own boss. Material things are a majority of what this is about, but it's NOT everything. There are waaay more benefits to being a successful real estate investor (i.e. own boss, hang out with childeren, spend more time on hobbies.."FOORRREEE!") than just buying crap. BUT regardless if the majority of what you want it materialistic, SO WHAT!! At least you have something that means something to you and is something that you're shooting for! If you have nothing to shoot for, then you have no reason or purpose to have passion and ummph with your daily activities. In a nutshell, successful real estate investors have GOALS and strive to achieve them.


4) Students of the game - This can be categorized as learning the know-how, but I believe it's more of the attitude towards learning and getting better. The top people in any game, real estate or otherwise, have this mentality when it comes to their profession. They're always striving to learn more and better ways of doing things. It's one thing to learn how to make $10,000 on a deal, but the willingness to learn how to make $50,000 on the same deal is what makes the real successful investor stand apart.


5) Committment- If this is the game you want to be in, you have to have committment. There are no two ways about it. Mr. Trump in the mid 90s experienced serious financial troubles, but because he was 100% committed to real estate and had all the other traits mentioned above, he persevered and came back. And stronger than ever. Please refer to his book "The Art of The Comeback". Committment in real estate is the same as committment in a relationship - you have to give your all and be ready to fight through the rough times.



So learn what you need to learn about real estate, but at the same time learn what you need to learn about yourself and what sort of mentality and attitude you need to have to become a super duper rich, multi-millionaire real estate investor.


To your success my friend!

Al

Housing Bust Is Over!

Economists Say the Worst
Of Housing Bust Is Over

The worst of the housing bust is over, economists said by nearly 2-to-1 in the latest WSJ.com economic forecasting survey. But they still predict that the average selling price of a house will fall next year.

After several years of double-digit percentage increase, housing prices stopped soaring this year. The 49 economists responding to the WSJ.com forecasting survey expect home prices, measured by the government's Office of Federal Housing Enterprise Oversight index, to rise 2.8% this year and to fall by 0.5% next year. That contrasts with a 13.4% increase in 2005.

"We're nearing the end of the slowdown for most markets," said Ethan S. Harris at Lehman Brothers. Prices still have some ways to fall before they'll stabilize, but there are signs that most drastic parts of the downturn - marked by a sharp pullback in demand and new construction - have run their course.

More See forecasts by economists on holiday sales, inflation, employment and the housing sector. Plus, David Wessel discusses the poll and the housing market in a video report.

The economists' predictions for home prices next year vary widely, from an increase of 7%, predicted by Kurt Karl and Arun Raha of Swiss Re, to a 10% decline, expected by Maury Harris of UBS. Mr. Harris, for his part, said he expects a large inventory of vacant newly constructed homes to push prices lower in the first half. Construction companies "built much more than were justified because of investor interest," he said.

While 20 economists predicted home prices would rise next year, 24 forecast a decline. Just eight of the economists forecast gains greater than 2.1%, which is their average forecast for consumer-price inflation through mid-2007. The Ofheo index, which is closely watched by economists, has never posted a year-to-year decline.

Richard DeKaser, an economist at National City Corp., a big mortgage provider, said he thinks the worst is over. "We're starting to see inventories topping out and possible declining," he said. Mr. DeKaser forecast a 4.4% increase in prices this year and a 1.8% decline next.

The housing market, of course, doesn't move uniformly across the country; some regions or individual cities often have price changes decidedly above or below the national average.

Mr. Harris of Lehman expects price declines next year to be confined to "bubble" markets, such as those in Florida, California and cities in Nevada and Arizona, where large numbers of investors have artificially inflated prices. "There's no reason for prices to be falling in areas without a bubble," he said. "People are just slowing down purchase decisions."

Allen Sinai, at Decision Economics Inc., believes the worst of the bust is over, but he feels housing remains a big risk to the economy. The housing sector subtracted 1.1 percentage points from third-quarter gross domestic product, according to preliminary numbers from the U.S. Commerce Department.

The economists trimmed their forecasts for fourth-quarter economic growth: Their average estimate puts gross domestic product growth at a 2.3% rate in the fourth quarter, down from the 2.5% rate they forecast in the October survey. They expect growth to remain at that rate through the first half of 2007 and then to accelerate later in the year. On average, the economists predicted growth of 2.8% during the second half 2007. GDP is the broadest measure of economic output.

The housing slowdown is expected to hit consumer spending, but the "consumer won't cave in and drive us into a recession," said Mr. Sinai. Steady interest rates, controlled inflation, stabilizing energy prices and a solid jobs market will support the economy, he said.

Indeed, new data released Monday indicated that weakness in the housing sector is being offset by other areas of the economy. The Conference Board, an industry-backed research group based in New York, said its composite index of leading indicators for October rose by 0.2% to 138.3, in line with expectations. September's reading was revised up to a 0.4% advance. The index is designed to predict activity in the three to six months ahead.

"People say all bubbles end in disaster, but this is a small bubble. Home prices are just about 20% too high. We need to take it seriously, but in the history of bubbles, this will go down as one of the smaller ones," said Lehman's Mr. Harris.

Among other findings in the survey:

• Economists expect a relatively happy holiday for retailers, forecasting a 5.1% rise in sales from last year.


• Some 57% expect Fed policy to be the biggest factor in the economy and markets over the next year, topping Iraq or the budget and tax legislation.


• Just eight of 56 economists expect the Federal Reserve to raise rates beyond the current 5.25% rate before June 2007.


• Economists expect just 107,000 new jobs a month over the next year, down from 109,800 forecast in October and 179,400 at the high for this year's surveys, in February.

Younger Generation Begin To Buy

DENVER (MarketWatch) -- The housing market may be in a slump, but the industry's long-term trends look promising as younger generations begin to buy and trade up. That was the consensus among a group of consultants, analysts and developers speaking at the recent annual meeting of the Urban Land Institute in Denver.

Rising affordability concerns in some home and rental markets remain a challenge, but the generations coming up behind the baby boomers are giving home builders a run for their money, experts said. With more immigration and people living alone, demographic shifts are pressing developers to reconsider what's worked in the past.

Generation X, typically defined as those born between 1965 and 1979, comprise a little more than half of the market for newly constructed homes, said James Chung, president of Reach Advisors, a Boston-based marketing strategy and research firm.

But that doesn't mean the homes that lured baby boomers, born between 1946 and 1964, are meeting the needs of the 30-somethings shopping now. Learn more about what boomers want in housing.

"Generation X is in the heart of their entry-level home-buying years and are just now entering their peak trade-up years," Chung said. "They haven't yet stolen the thunder of the boomers when it comes to trade-up homes. It's a big shift coming up for home builders and developers."

Partly because many Gen-Xers are buying into the market after the run-up in housing prices began about a decade ago, they tend not to be as moved by deluxe kitchens, huge square footage and "prestige addresses" as their older counterparts are, he said.

"It's the trade-off generation. It's no longer sort of the live-large mindset," Chung said. "They're living under different economic realities than their predecessors. They carry 70% more debt than the baby boomers did at that point in their lives because of the cost of housing.... Almost all of that is housing debt."

Many are forgoing master suites and separate wings for kids and adults and instead seeking smaller footprints with space designed for family usage rather than individual usage, Chung said.

The market has yet to catch up with their particular demands, he said. "What we're seeing is a fundamental mismatch between what these buyers are wanting and what the market is offering. They're settling for what's available vs. finding what they really want."

As for Generation Y, also know as the echo boomers who were born after 1980, it's premature to draw conclusions, Gadi Kaufmann, chief executive of Robert Charles Lesser and Co., a real estate advisory firm, said during a ULI panel discussion on what young consumers want.

"Gen Y is going to be in student housing and rentals for the next six years," he said. See how student housing has changed today.

Also affecting home builders and developers is the rise of nontraditional households, Kaufmann said.The portion of people living without a spouse or roommate ballooned 23% since 1980, he said. Only 22% of households were made up of a single person living alone 26 years ago compared with 27% in 2005.A 57% rise in single-parent households and a 26% decline in the percentage of married couples with kids -- 23% last year compared with 31% in 1980 -- has further changed the housing landscape, Kaufmann said.

There's also more migration from expensive cities to less costly areas, as well as people moving away from their hometowns, he said.

Southern states and those bordering pricey ones, such as Arizona and Nevada, are the beneficiaries of home buyers who can't afford or become disenchanted with higher-priced areas such as California and the Northeast, he said.So-called second- and third-tier cities with populations of 300,000 to 1 million are attractive to the youth market and poised for growth, Kaufmann told the audience. "Some of the most exciting towns in America are those second-tier cities."

Young people also tend not to mind close living, he said. As more people live alone and wait longer to marry and start families, many in their 20s and 30s are drawn to compact apartment and condo units in urban areas where they can interact with their neighbors.

The growth of the Hispanic population also portends shifts, though what kind remains unclear, Chung said. Latinos currently have a homeownership rate in the high 40% range compared with about 72% for whites. "If they move up in homeownership at a faster rate, that's going to be very positive for the home market."

Remodeling Projects That Pay Off

From Marketwatch

About to start that summer home-remodeling project? Read these tips first.

For anyone who has ever put their home on the market, you know that feeling you get when you've spruced up the whole house for sale and inevitably some potential buyer tours your home says: "Maybe we should keep our house and just remodel."

This may be especially true when you look at the cost of replacing your house. According to the National Association of Realtors, U.S. homes have appreciated 6.8% annually on average since 1968, compared with inflation during the same period at an annual clip of 5.1%.

In addition, the American Homeowner's Foundation estimates that it can cost up to 10% of a house's value to replace it with another, even one that costs exactly the same. That's because real estate transaction costs are high, including agent commissions, mortgage fees, transfer taxes, attorney costs, title searches, surveys, movers and the like.

Thus selling one $200,000 house and buying another of similar value could set you back as much as $20,000. So, when looking both at home appreciations and the cost of moving, it may make sense to stay put.

An estimated 1 million homeowners per year undertake a remodeling project, boosting what was a $230 billion industry in 2003. The decision of whether to sell a house, or stay and remodel, is one that is based on many factors, including what type of changes you want to make, how long you plan to stay in the house and the cost of the remodeling in comparison to the value of your home.

Rules of the house

Experts say there are at least two rules of thumb when it comes to remodeling your house.

First, you should not increase the value of your house to a point where it is the most expensive home in your neighborhood. This could make it difficult to sell the house in a competitive housing market.

Second, you should strive to keep your new mortgage debt below 80% of your home's new appraised value. Not only does this keep you below the debt/equity ratio requiring you to pay private mortgage insurance on the new loan, but it also ensures you don't assume a monthly payment that precludes you from having a balanced household budget.

Best improvements for your dollar

Remodeling magazine conducts an annual survey of the remodeling projects that add the most value to your home. The survey compares how the same 18 remodeling projects affected home values in 60 different cities. The 2004 survey, the most recent, was the 18th for the magazine.

According to Remodeling, the top five remodeling projects in 2004, ranked in the order of percent of cost recouped at home resale, included minor kitchen remodel (92.9% of cost recouped), siding replacement (92.8%), midrange bathroom remodel (90.1%), deck addition (86.7%), and midrange bathroom addition (86.4%).

The exact figures can vary greatly based on the housing market in your area. When housing prices are rising rapidly, remodeling costs can be recouped faster. In addition, if your remodel simply catches your house up to the others in your neighborhood -- say, adding a third-car garage to your home when all other homes in your neighborhood already have the same -- this type of improvement could actually recoup more than the cost. See the 2004 survey.

The question of how much to spend on remodeling could also depend on whether the changes could be categorized as maintenance or remodeling. Maintenance improvements would be things like replacing the roof, carpet, or repainting. In addition, maintenance projects that focus on energy efficiency may have an even quicker payback than standard remodeling. Replacing windows, adding insulation and upgrading to more-efficient air and heating units are good examples.

It may also be important to consider how much enjoyment you will get out of the improvement. A home office, pool or gazebo may enhance your family's quality of life, but experts say these are examples of remodeling projects that rarely give anywhere close to 100% payback at resale.

Getting the right help

Once you decide on a remodeling project, you still have to choose from among the estimated 800,000 companies and individuals who identify themselves as remodelers in the U.S. Experts advise asking some basic questions of a prospective contractor such as:

• How long have you been in business?
• Will employees or subcontractors be assigned to the project?
• How many projects like mine have you completed in the past year?
• May I have a list of references?

Don't rely on just one estimate for any job, as costs can vary by 10% or more among companies. And make sure you understand what is included in each bid so that you can accurately compare. On a roofing job, for instance, the grade of shingles, type of sheathing and kind of flashing could vary, meaning a lower bid might also represent lower quality.

In addition, one of the most important questions you may need to ask is whether the contractor has liability insurance -- for themselves as well as any subcontractors they plan to use. Don't hesitate to ask to see an actual certificate of coverage.

Finally, make sure that your own homeowner's dwelling insurance is raised to include the value of the newly remodeled house as the work is completed.

By sticking to these suggestions, you will be enjoying your new remodel job both now, and for many years to come.

Housing Slightly Recovering

Home Inventories Fall in October

U.S. home inventories dipped slightly (1.2%) in October from September, a sign that the housing market is making a positive adjustment, according to an article by The Wall Street Journal Online. However, the number of homes for sale is still significantly higher than year-earlier levels, the article says. Use an interactive tool to track home inventories in 15 U.S. cities. Areas seeing the biggest drops in the number of homes offered for sale include Sacramento, San Diego and the San Francisco Bay region, the article says.

Rising Home Inventories
Use our interactive graphic to track the change in the number of homes for sale by city.

Recovery for Los Angeles Market?

The median home price in California's Los Angeles County rose 4.5% in October from a year ago to $514,000, a sign that the local real-estate market may be stabilizing, according to an article by the Los Angeles Times. That rise in appreciation is greater than the 3% year-over-year increase seen in September, the article says. However, home sales continued to drop, falling 21.8% in October from October 2005's levels, the paper says. However, that decrease was less than the 28% year-over-year decrease seen in September, the Times says.

Albuquerque Is a Buyer's Market

The housing market in Albuquerque, N.M., may be tipped against sellers at the moment -- in September, the number of existing homes on the market --- 4,695 -- was more than double a year earlier, says The Albuquerque Tribune. However, home prices continue to rise, the newspaper says. The median home price in the city rose 34% between 2003 and the second quarter of this year, from $138,400 to $185,400 -- a gain much lower that the type of gains seen in places in the Northeast and on the coasts during the same time period, the paper says. These more moderate price increases may be why the area hasn't seen big dips in housing prices, the Tribune says.
[Blueprint]
Buyers have the edge in Albuquerque, N.M., where home inventories in September were more than double a year-earlier's levels.

Sales Are Down in Nantucket

The number of homes sold in Nantucket, Mass., dropped 42% (from 173 to 102) in the third quarter from third quarter 2005 levels, says an article by The Inquirer and Mirror. However, the median price rose from the same period the year before to $1.6 million, the article says. Current home asking prices on the island range from $495,000 for a townhouse in Madaket to $23 million for the estate of ex-Tyco chief Dennis Kozlowski, the paper says. Despite the slowdown, homes are selling within 6% of their listing price, and real-estate agents are advising their clients that if they don't need to sell, they should hold off placing their homes for sale until the market heats up again, the article says.

Homeowners Delay Selling in Twin Cities

After seeing five years of percentage gains in the double digits for housing prices, the Minneapolis-St. Paul, real-estate market is showing signs of slowing, says the Star Tribune. As a result, some homeowners are opting not to put their properties up for sale, which was reflected in October's dip in the number of new listings, the paper says. That month, listings were down 4.4%, closed sales fell 19.6% and the median sales price dropped 1% to $228,000, the paper says. Because many potential sellers are waiting out the market, local real-estate prices shouldn't drop significantly in the next few months, sources quoted by the Star Tribune say.

Baltimore Experiences Weakest Market in Six Years

This autumn, the Baltimore housing market experienced its weakest October since 2000, with the number of homes sold down more than 22% from a year earlier, the Baltimore Sun says. For the fifth month in a row, the area experienced an increase in home prices that was under 10%, the newspaper says, with the average sale price in Baltimore and five surrounding counties rising by just 3.15% to $307,190. Potential buyers are holding off on making a purchase in the hopes of seeing lower home prices and mortgage rates, the paper says. A local economist quoted by the Sun says he doesn't expect a turnaround in the local market until the middle of next year.

The "Other" Benefit With Real Estate Investing - Tax Deductions.

Happy Monday to you all!

This topic (taxes) hardly ever comes up when talking real estate investing.

Maybe it's the fact the it's the least sexiest of all the reasons to invest in real estate. Appreciation and cash flow are always king when it comes to discussing real estate investing.

Regardles of why people overlook it, people that are true real estate investors (and are in the know), truly maxmize their investment profits by factoring taxes into their overall real estate investment scheme.

Whether you own multiple properties already or plan on buying a 2nd home or investment property, understanding and utilizing your tax deductions could yield you thousands EVERY YEAR!



Tax benefits of real estate investment

There are many different types of investment real estate: rental houses, apartments, vacant land, commercial buildings, industrial, shopping centers or warehouses.

They all offer big tax incentives for investors who understand those benefits.

Many people believe that depreciation is the best real estate tax deduction of all. The IRS REQUIRES real estate investors to depreciate their investment properties.
Depreciation is a "paper loss" required for estimated wear, tear and obsolescence. However, land value is not depreciable. This applies to 100% of the money invested in buying vacant land and that part of the property value apportioned to land on an improved property. (That is, land with a building on it).

Condominiums do not have a land element and 100% of the purchase price can be depreciated.

Residential income property is depreciated over 27.5 years on a straight-line basis.

Commercial property is depreciated over 39 years, also on a straight-line basis.

Extra tax benefits of being treated as a "real estate professional".

If you are a "real estate professional" who meets certain time requirements and who "materially participates" in managing your investment property, you are allowed almost unlimited income tax-deductions from your investment property.

Time Requirement

If you spend at least 750 hours per year, or more than half of your working hours, involved in real estate activities, you probably qualify as a "real estate professional."

There does not appear to be any clear IRS ruling on a semi-retired person with no occupation but real estate to which they devote say, 200 hours a year.

Full-time real estate brokers, realty sales agents, property managers, builders, contractors and leasing agents are examples of qualified real estate professionals.
However, the tax law excludes real estate attorneys and mortgage brokers from qualifying. Unless, one must assume, they spend more than 50% of their working hours investing in real estate. This would include managing, buying and selling real estate.

If you invest in real estate but do not qualify as a "real estate professional", you are limited to a maximum annual $25,000 realty investment property loss deduction against their ordinary taxable income. This is called the passive loss restriction.

This "loss" includes the paper loss created by depreciation.

Another catch. If your annual adjusted income exceeds $100,000, the $25,000 loss deduction gradually phases out. At the $150,000 adjusted income level, the allowable tax loss deduction goes to zero.

Any undeducted real estate investment tax loss is "suspended" for future use, such as at the time the property is sold at a profit. Then you may subtract the unused suspended tax loss from your capital gain to lower the taxable profit. See below.


Material participation requirement

Participation is critical. You can hire a professional property manager and still meet the material participation requirement, and claim the unlimited tax deductions as a professional.

Day-to-day operating details, such as collecting rents, evicting tenants and unclogging toilets, can be delegated to this manager.
But, you must make the major decisions, such as setting rents, approving major expenses and qualifying new tenants. Remember of course the time requirement.

Depreciation of personal property such as appliances

Personal property used in operating the property, such as appliances, is depreciated over shorter periods, typically five to 10 years. Even automobiles and trucks used in the investment operation can be depreciated over their useful lives.
First-year 100% deduction

There is also the new first-year 100 percent tax deduction for up to $100,000 of business equipment purchased. This would include appliances. Sorry but you can't buy a brand new Mercedes and deduct 100% of the cost from your taxes in the first year. But there are special rules for work vehicles, such as trucks. Ask your CPA for more details.

Depreciation is a non-cash deduction

It reduces taxable income from the investment property. But, in contrast to property taxes, mortgage interest, utilities, insurance and repairs, it doesn't require any cash outlay. The depreciation expense deduction can result in a positive cash flow property becoming a loss maker for tax purposes.

Most investment properties go up in value every year, but on paper their value is going down.

Unfortunately, unused tax losses from investment properties cannot be carried back to prior tax years to claim a tax refund.

IRS Notice 88-94 allows use of suspended passive activity tax losses (assuming you do NOT qualify as a professional with material participation) from realty investment assets to offset profits from the sale of the property. The tax result is that you can use suspended property losses on an total basis, rather than property-by-property.

Recapture of depreciation benefits

The maximum capital gains tax rate was reduced to 15 percent in 2003 for assets owned more than 12 months. (If held for less than 12 months gains are taxed as ordinary income.)

However, the IRS requires that you "recapture" the tax saving from your income tax at a special 25 percent depreciation "recapture" tax rate when the property is sold. This apply whether or not you qualify as a "real estate professional."

Example of recapture

-Suppose you bought an investment property for $500,000 and deducted $150,000 of depreciation during your ownership years.
-That means your book value (also called "adjusted cost basis") declined to $350,000. Then you sold for $650,000.
-Your capital gain is therefore $300,000 ($650,000 minus $350,000).
bullet Of that $300,000 capital gain, the $150,000 depreciation deducted will be "recaptured" and taxed at the 25 percent special federal tax rate.
-The $150,000 remainder of your capital gain will be taxed at the new 15 percent maximum tax rate.


Have a great week!

Al

Housing Correction To Continue Through 2007

The housing market correction has further to run, with new-home construction expected to fall another 12% next year, a real estate industry group said Friday in an updated forecast for 2007.

While the market for existing homes will probably flatten out, the new-home market will probably continue to slow through next year, said David Lereah, chief economist for the National Association of Realtors.

Sales prices are expected to rise slightly. "Given the huge gains in home values during the housing boom, and this year's rise in housing inventory, overall price gains this year and next will be modest," Lereah said. Median existing-home prices are expected to rise 1.7% next year, while new-home prices are expected to rise 1.3%.

Discuss
Share your views with other readers on how long you think the housing downturn will last.

Housing starts will probably fall about 12% next year to 1.63 million after falling 11% this year, he said. Starts totaled 2.07 million in 2005.

The NAR forecast for housing starts for 2007 is close to the Blue Chip consensus forecast of 1.62 million. The Blue Chip forecast is derived from the forecasts of 54 economists surveyed by the publication Blue Chip Economic Indicators.

New-home sales will probably fall 8.7% next year to 975,000 after plunging about 17% this year, the realtors said.

Existing-home sales will probably fall 0.6% to 6.43 million next year after sinking 8.6% this year, he said, adding that sellers are becoming more realistic.

"We now have the most favorable market for home buyers in several years," Lereah said.

Houston - Ready for take-off?

Happy Friday everyone!

Now what we've settled into this "adjusting" period, one of the more popular questions for would be investors that may have missed the Vegas/Florida/Arizona real estate boom is..

"Where to now?"

Well, there are many cities poised for above average growth in the next 5 to 10yrs. A lot of companies, big and small, have packed up their operations and have started to migrate to middle america (non coastal states) - Texas, North Carolina, Utah.

And as this happens, the shift of the local economies of these cities starts to head upward...which in turn creates more jobs...which creates an influx of people moving to these areas...which in turn creates more demand for housing.

Makes sense, right?

The bottom line: Invest where the potential of economic growth is greatest.


Alas, so all YOU have to do is figure out where this economic growth is happening : )

Ok, you can do one of two things to find the hidden gems (cities)

1) Take the time to research cities/states yourself.
2) Have someone else research them for you.

Ok, so option 1 is obvious. Surf the net...check out each and every cities projected development plan for the next 10yrs and..ZZZZZZZZZzzzz. You could research for weeks and not figure out a damm thing. Plus, if you're like me...family...kids...and work...you have no time to do this.

Soooo, we move onto option 2 - "Have someone else do it".

What's this mean exactly?

Well, in a nutshell, follow growth related companies, and see where they're headed.

Home Depot
Lowes
Walmart

These businesses spend boat loads of time and money researching potential cities to expand their operations.

Think about it. Have you ever seen a Home Depot or Lowes in a location where the local economy wasn't thriving? I know I haven't.

One of the cities that constantly comes up when talking "next place for big growth" is Houston.

Check out this recent article from realestatejournal and see if Houston might be the next place you put your investment dollars....



This sprawling city missed the real-estate boom that sent home prices soaring on the East and West coasts. Now, with much of the nation's housing market in retreat, it has yet to feel even a tremor.

In September, local sales of single-family homes and condominiums were up 17.7% from a year earlier, logging their 32nd straight month of increase, according to the Houston Association of Realtors. The median price of an existing single-family home: $143,400, up 3%.

By contrast, nationwide sales of residential real estate fell 14.2% in September, according to the National Association of Realtors. Home prices nationally were down 2.2%, retreating in such former hot spots such as Washington, Boston and San Francisco. The national median sales price for September for existing single-family homes was $219,800, according to the Houston Association of Realtors.

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Houston's gains are nothing like those seen in the past decade in the Northeast and California, but that may be the secret to Houston's success and the reason a bubble is unlikely to develop here. Land here is abundant, and the city has some of the least-restrictive land-use and construction rules in the nation. Those factors help supply to keep pace with demand and keep prices within reach of a broad range of potential buyers.

"We haven't had a bad year in the past decade," says Lorraine Abercrombie, chairwoman of the local Realtors group and marketing director for Greenwood King Properties.

Houston's model is in stark contrast to cities such as Boston and San Francisco, which have strict zoning, exacting building codes and laws governing historical preservation. Some economists, including Edward Glaeser of Harvard University, say excessive regulation in such cities has slowed construction to the point where demand has outstripped supply, fueling a run-up in home prices.

In the once-sizzling markets where home prices are falling, housing costs are double, triple or even quadruple those of Houston. The danger, says Dr. Glaeser, is such places have priced out today's highly skilled "knowledge workers," forcing them to live in a more affordable locale where their contribution to the economy might not be as great. "These are places where only the elite can live," Dr. Glaeser says.

Not so Houston. Confined by neither oceans nor mountains, the Houston metropolitan area has plenty of room to spread out. What is more, the city has no zoning, weak historical-preservation rules and few tools to preserve open space.

The result is unfettered growth. For that, too, there is a price to be paid.

Houston lacks the historical charm of a city such as Boston and the natural beauty of a place such as San Francisco. In recent years an increasing number of Houston residents have warned that the city's affinity for strip malls, freeways and endless subdivisions may be putting it at a disadvantage in attracting talented workers.

Even so, Houston's economy is humming, thanks in part to a sustained boom in oil and gas and the city's burgeoning medical industry, which attracts patients from all over the world. In addition, the Hurricane Katrina evacuation in 2005 brought tens of thousands of refugees here, pushing up retail sales and lowering apartment-vacancy rates. Most of the Katrina refugees weren't wealthy enough to buy homes, however.

The Houston metropolitan area has added 420,000 jobs since 1995, according to the Greater Houston Partnership while the 10-county metropolitan statistical area topped 5.2 million people in July 2005, up about 11% from the 2000 Census count, according to the Texas State Data Center.

Affordable housing has played a significant role. James Gaines, an economist at the Texas A&M University's Real Estate Center, says a Houston developer can be "cutting roads and building houses" within a year of buying 500 acres. The same project would take a developer in Florida three years and as many as eight years in California, substantially pushing up the price, says Dr. Gaines.

The Houston Association of Realtors reported total property sales -- everything from single-family homes to country homes to lots listed on the Multiple Listing Service -- numbered 7,163 in September, up 17.8% from a year earlier. Sales of new and existing single family homes were up 19.3% to 5,954. The pace of home sales is also picking up. The trade group says the area has a 5.5-month supply of unsold homes, down slightly from August.

The national outlook isn't so bright, with some economists forecasting that sales of new homes are unlikely to start rising again before early 2008. A joint survey by consulting firm Global Insight and Cleveland bank holding company National City Corp. showed that 67 metropolitan areas experienced price declines in the second quarter this year, and not just those that enjoyed the boom. The Midwest, for example, showed the highest concentration of falling prices.

The survey also showed slower home-price increases nationally in the past year, with the most rapid slowdown coming in high-price markets such as California, Florida and the Northeast corridor. Nearly 70% of the 317 metropolitan areas surveyed showed a decline in appreciation during the period.

Texas had six markets where home prices rose at a rate of between 6% and 12% and another nine markets where prices increased 12% or more, the survey showed. Richard J. Dekaser, chief economist for National City, says, "It's like revenge of the nerds."

Rates Drop Sharply!

Good news this morning folks!

"RATES DROP SHARPLY"

As reported by Bankrate.com.

We've been on a slow climb for the last year or so with rate increases, but I guess the feds have realized that continuing to raise rates might not be a good thing for the stagnant economy.

Ya think?

For those of you that have been thinking about buying property, it's time to buy!!

(please see previous post : ) )


Bankrate.com
Mortgage rates drop sharply
Thursday November 2, 6:00 am ET
Holden Lewis

Mortgage rates plunged this week, and hardly anyone took advantage.

Business is dead, a mortgage broker laments, and the latest stats from the Mortgage Bankers Association bears out that assessment. The MBA says mortgage applications fell 3.3 percent last week and are 11.2 percent lower than the same week last year.

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All while rates were rushing downhill as fast as a toboggan after a blizzard.

The benchmark 30-year, fixed-rate mortgage fell 15 basis points to 6.31 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.25 discount and origination points. One year ago, the mortgage index was 6.37 percent; four weeks ago, it was 6.31 percent.

The 15-year, fixed-rate mortgage fell 14 basis points to 6.02 percent. The 5/1 adjustable-rate mortgage fell 15 basis points to 6.13 percent.

Weekly national mortgage survey
Results of Bankrate.com's Nov. 1, 2006, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

30-year fixed
This week's rate: 6.31%
Change from last week: -0.15
Monthly payment: $1,022.38
Change from last week: -$16.20

15-year fixed
This week's rate: 6.02%
Change from last week: -0.14
Monthly payment: $1,394.15
Change from last week: -$12.52

5-year ARM
This week's rate: 6.13%
Change from last week: -0.15
Monthly payment: $1,003.09
Change from last week: -$16.06

Rates fell at the same time that economic reports seemed to be signaling that the economy was going through an icy patch. Factory orders fell, construction spending was down and an index of future home sales showed that sellers will continue to have reasons to weep. When it looks like the economy is about to slow down, long-term interest rates tend to fall.

Balmy bulletin snubbed
There was positive economic news, too -- such as a report that wages and benefits are rising at the fastest rate in two years -- but investors were paying attention to the lousy news. Then there's the upcoming elections.

There's a long-standing perception that Wall Street isn't happy when the Democrats wield power, and the Democrats look poised to win at least one chamber of Congress. If that bothers Wall Street firms and their employees, they have a weird way of showing it: In this midterm election cycle, 51 percent of their contributions have gone to the Democratic Party and its candidates, and 47 percent has gone to the Republican Party and its candidates, according to records compiled by The Center for Responsive Politics.
In other words, it looks like this week's slide in mortgage rates isn't the result of a temper tantrum on Wall Street.

So what's going on? Bob Moulton, the broker who laments the lifelessness of the mortgage biz, says most of the signs are good. "The rates are great," says Moulton, president of Americana Mortgage in Manhasset, N.Y. "The stock market is at an all-time high. Gas prices are down." A year ago, he says, mortgage business was down and everyone was attributing that to high gasoline prices and rising long-term rates. Those excuses are gone, but the problem persists.

Moulton guesses that people are, believe it or not, too busy to pay attention to the daily and weekly gyrations of mortgage rates. They pay attention to the Federal Reserve's rate moves, "not really appreciating how long-term rates vary differently from what the Fed does."

And how. The Fed raised short-term interest rates 17 times in a row over two years and finally stopped at its Aug. 8 policy meeting, keeping rates steady at 5.25 percent. The federal funds rate has remain unchanged since then, while mortgage rates have slipped about 30 basis points. Moulton worries that a lot of homeowners don't know this and are missing opportunities to refinance.



Have a great day!

Al

Risk or not to Risk?

Good evening people!

It's later than usual, but I had a really busy day today. I have a few deals in process and it never ceases to amaze me how unsmooth the loan process can be. They need this signed, they need that fax'd, they need this emailed....ARRRGH!!

The good news is I had a signing tonight, so all it's good. In this business, apart from the money (which is pretty good), the real satisfaction comes from helping people go from thinking about the american dream, to actually achieving the american dream.

Awesome!

Ok, so I spent the better part of the weekend just loungin around the house and watching a little football on Sunday. I eventually got off my lazy butt and made it down to the local Barnes and Noble (love this place!) to get my education on.

As always, I ended up in the real estate section. I never really know what I'm looking for til I actually find it. After 10 min of scanning the shelves, I settled on a book titled "Risk and grow rich". The title is a spin off of one of the most influential books out there - "Think and grow rich". If you're in the money game, this book is a must-have.

The author of the book is Kendra Todd. If the name sounds familiar, it's because she won "The Apprentice" a year or two ago.



The book is more or less an overview of how risk plays an important part of owning and investing in real estate.

It's a pretty straightforward book. No ground breaking news to be discovered with this one. For example, the formula she explains to become a millionaire isn't rocket science, but because of the..say it together...risk involved, most people don't bother.

The formula?

Buy one home..wait...refi...take the money and buy another place. Repeat 7 to 10 more times. Simple enough, right?

After scanning a few chapters, I realize that this is just another spin on real estate with many items rehashed. I mean seriously, after you read one real estate book (topic specific of course), you've read them all. It's still a good read, and I'd recommend it.

The book is just another reminder that to make it in real estate, you've got to be willing to risk what you have in order to obtain something you want.



My acronym for RISK:



Reward

What's the payout? What is it that you're willing to give up your security for? And does the risk outweigh the reward and vice versa. In order to go for it, you have to know that the reward is in balance with the risk. The risk reward factor.


Intuition

Sometimes you have to go with the feeling inside your gut. I play poker from time to time, and sometimes you're in a situation where you're going head to head with someone and all you have left is your intuition. Does it FEEL right? I'm a firm believer in the "6th sense" (they cover this in Think and Grow Rich) and the external forces that be.


Sacrifice

Well, it's pretty much what risk is all about in a nutshell. Are you willing to sacrifice what you have in order to get what you want? That's deep. If you're not willing to sacrifice, then you're not willing to take risks.



Knowledge

When we talk about risk, we're not just going in blindly and just taking risks to take risks. You have to know what you're getting into and know it from top to bottom.....What's the best case scenario? What's the worst case scenario? How do we increase our probability to attain the goals we've set forth? In real estate, since you're mainly dealing with numbers, the knowledge can be as simple as "It's worth 100K, but I can buy it for 50K".



Real estate investing is all about taking calculated risks!

Good night!
Al