Designed to Sell

Designed to sell
Details count when putting home on market
Daily News Journal
By NANCY DE GENNARO
degennaro@dnj.com

If you're in the market to sell your home, it's going to take more than putting a sign up in the yard. You're going to have to be committed to selling it.

"Before you put it on the market, you want a clean carpet, furniture and curtains. You want it to look nice," said Alfreda Smithson, a realtor with Re/Max Elite in Murfreesboro.

With a little time and lots of elbow grease, you can clean the grime and clear away years of dirt and dust. So roll up your sleeves and get to work.

Deep clean

First you have to start with an initial cleaning, then maintain the appearance as long as your home is on the market. Of course, don't forget the basics: clean carpet, curtains and furniture (upholstery).

"It has to sparkle from top to bottom," said Debbie Bailey, a Realtor with Snow and Wall in Murfreesboro.

From the cobwebs in the corners to the fuzzbunnies on the ceiling fan, clean everything you can possibly think of, said Bailey.

"They're looking at the house, but they are (also) looking at how the people live," said Smithson. If someone sees you keep everything clean, they know you've taken care of things around the house.

"Make sure the stove and microwave are clean," warned Smithson, who added, "and don't throw your dirty stuff in the stove, because they will open it."

People will open just about any drawer and door in your home, so be prepared by cleaning everything as well as possible. You also want to make sure all those doors and drawers work properly. If not, you may need to replace them, noted Smithson.

Day-to-day clean

Bailey offered tips to keep in mind each day: Keep the litter box changed and pet food bowls neat; make your bed, put away clothes and wipe down counters; clear out the kitchen sink and put dirty dishes in the dishwasher; be sure all electric appliances are put away, especially in the kitchen (blenders) and bathroom (hair dryer).

Walls

A fresh coat of paint goes a long way, although Smithson said "you need to go with a neutral paint all over because everything goes with neutral."

Don't overcrowd your walls. You'll have to patch up those nail holes at some point anyway, so the less holes you have to deal with, the better. The pictures you do have, keep them hung at eye level, noted Smithson.

Some Realtors also suggest taking down family photographs all together so the potential buyers can associate the house itself as being a home — their home, not yours.

Declutter

You don't have to take down all your knickknacks, but you definitely want to "keep it simple," said Smithson.

You'll also need to clear out those stacks of magazines, piles of newspapers and mounds of junk mail.

Decluttering may also mean clearing out bulky furniture pieces or shifting items to other rooms.

"If you don't have good walkways and paths (through the home), that makes (the potential buyer) immediately think the house is too small for them," said Bailey. "What you want to do is open up the house and make it look bigger, so less is better."

Clean out your closets, too. Pick out old clothes you haven't worn in years and either give the items to charity or pack away. Have a yard sale and get rid of those items you haven't used in years.

Outside

Curb appeal is key because you want the first impression to be good. Oftentimes people know before they even walk inside a home whether they will be interested.

"So keep your yard mowed, your walkway clear, your bushes trimmed," said Bailey.

Paint the exterior trim, such as the wooden railings on the porch, and be sure to look closely in case there is rotted wood you need to replace.

Pressure-wash the exterior to get rid of mold and mildew stains, and pressure-wash your sidewalks.

If you have a bit of rust on some of the exterior fixtures, sand away the bad part and touch up with gold metallic paint, suggested Smithson.

Don't forget to clear out clutter and trash underneath your deck, too, said Bailey.

Keep landscape simple. If weather permits, you might want to plant a few colorful flowers.

It's show time

When you know your home is going to be shown, leave. You also should turn on all the lights and open up the blinds to make the house seem "lighter, brighter and cheery," said Bailey.

Especially for an open house, keep fresh flowers can add a nice touch on tables and countertops.

Keep some sort of aromatic plug-in going on, but nothing floral, warned Smithson, who explained that many people might be allergic. Generic scents such as vanilla work best and give the house a homey feeling. For an open house, try boiling some potpourri or baking cookies.

"You can tell people who prepare to sell their house," said Smithson. "If the house looks good, it will sell."

Vacation Properties

Vacation Properties Come With Extra Expenses
by M. Anthony Carr

There's nothing like a short jaunt to the beach (or mountains) to release your stress, get your first seasonal sunburn and start thinking about buying a piece of vacation rental property.

Come on, we've all done it. Just when the sand is about completely shaken out of all the towels and swimsuits, you start drooling over the prospects of owning your own home on or near the water.

How difficult could it be? If it's a rather affordable area, then it's going to take care of itself as far as monthly payments are concerned, right? Twelve prime rental weeks from Memorial Day to Labor Day is just the right amount of time and income to cover the 12 months of the year, right? Keep in mind that a vacation rental property has some unique expenses that you'll not face in your primary residence.

Furnishings
Your cost of housing isn't just the purchase of the land and lot, but also everything that's in it. If you want repeat renters, then it's got to be nice -- every time. At least check out auctions/sales from used hotel furniture before heading to the new furnishings store. Some investment sales include all the furnishings so you don't have to go shopping. But remember that you're renting out a property as a place for people to relax and think about nothing -- especially about the frayed couch coverings, bad springs in the master bedroom and leaky faucet in the bath or kitchen. Your house has to compete with the likes of at least a nicely furnished and operated local hotel.

Cleaning services
In between each rental, you're going to have to have the dwelling cleaned out. Through the summer, unless you've had 12 groups of very conscientious vacationers, you're going to have to have the place shoveled out at least a dozen times. The cleaning is more than just what you would do to prepare for dinner guests. These guests are paying you $150 to $300 per day for a week of vacationing – it better be as clean as a brand new home. This means a gleaming kitchen and bath, fuzz-free carpeting, crystal clear windows and a fresh smell throughout.

Wear and tear repair
After these folks have paid you to live on a weekly basis in your home, then you've got to come in and repair what they have broken. What you're used to seeing at your home now, may not cut it in your vacation property. They expect to see near-new carpeting or flooring, meaning that if it's getting worn, it's time to replace it. Peeling paint? Repaint it. Mildew in the bath? Re-caulk it. Sun-burned or algae-covered decking? Blast and stain it. These are not necessarily inexpensive repairs, but this property is now a commodity. A commodity that you want your customers to be banging on the door each year to rent.

Utilities and Management fees
Just like your house at home, you are going to have to keep up the property. Hopefully, you've charged enough weekly rent to carry, not only your mortgage payment, but also the costs of carrying association dues, water, trash, electric and other utility costs (through the whole year, not just for the prime rental season). You'll need to keep up the exterior as well, so you may need funds for a landscaping crew.
Many of these services may be included with the contract you'll have with your property management company. And if you're thinking of managing the property yourself -- then think again. Managing vacation rental property is a totally different ball game than residential rentals. In a residential rental, the tenant joins you, the landlord, in keeping up the property. Remember, the vacationing renter is there to be treated as royalty -- or at least close to it.


Giving up prime rental periods
Another aspect of owning vacation property is to actually to be able to enjoy the property yourself a couple weeks a year. The challenge is letting go of the prime renting season to assure that you have enough weeks rented out during prime time to alleviate or completely pay for the challenges of paying mortgage payments through the rest of the year. So, kiss bye-bye to the Independence Day Getaway -- that's one of the highest-rent, most-desirable rent weeks of the year.

Personal time to open and close the property
Finally, remember that week you wanted to take to enjoy your vacation rental property? Well, this is probably going to be the same week that you're either getting the property ready to rent out the first week (de-winterizing the property) or getting it ready for the cooler months (winterizing).
Vacation properties can be a great way to buy a house now for the future (retirement or actual vacationing) at today's prices. But the smart investor will remember that with income and wealth building, come expenses and upkeep.

Published: April 14, 2006

Housing Market

Housing Market to Stay on High Plateau

RISMEDIA, April 12, 2006—Home sales should generally level-out and remain at historically high levels, according to the National Association of Realtors®.

David Lereah, NAR’s chief economist, said mortgage interest rates are trending up but will remain favorable. “Economic growth and job creation are providing a favorable backdrop for the housing market, but rising interest rates have an offsetting effect,” Lereah said. “Home sales will move up and down somewhat over the remainder of the year but stay at a high plateau, meaning this will be the third strongest year on record.” He expects the 30-year fixed-rate mortgage to rise to 6.9 percent by the end of the year.

Growth in the U.S. gross domestic product is forecast at 3.7 percent in 2006, while the unemployment rate should average 4.8 percent.

Existing-home sales are projected to drop 6.0 percent to 6.65 million this year from a record 7.08 million in 2005. New-home sales are likely fall 10.9 percent to 1.14 million from the record 1.28 million last year – both sectors would see the third best year following 2005 and 2004. Housing starts are forecast at 2.00 million in 2006, which is 3.2 percent below the 2.07 million in total starts last year.

NAR President Thomas M. Stevens from Vienna, Va., said home prices are expected to cool, but not as much as in earlier projections. “Although housing inventories have been improving, the balance is still a bit more favorable for sellers and annual appreciation remains in double-digit territory,” said Stevens, senior vice president of NRT Inc. “Even so, the market is in a process of normalization – appreciation will return to normal single-digit patterns, providing solid investment returns into the future.”

The national median existing-home price for all housing types is likely to increase 6.4 percent this year to $221,700, while the median new-home price is expected to rise 2.3 percent to $242,700.

Inflation as measured by the Consumer Price Index is seen at 3.4 percent in 2006. Inflation-adjusted disposable personal income should grow 3.8 percent this year.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

Q and A

Rules for landlocked properties
How to legally obtain a permanent easement
Tuesday, April 11, 2006

By Robert J. Bruss
Inman News

DEAR BOB: Quite by accident, my wife and I stumbled on a beautiful 3.5-acre hilltop parcel for sale near a small town where we have vacationed many times. The asking price is quite reasonable, but it has been for sale over 12 months. There is a very good reason: It is landlocked with no permanent access to a public road. It has a dirt road over a neighbor's land. The real estate agent introduced us. The neighbor is a "good old country boy." He says we can use the dirt road over his acreage "if we don't cause trouble." When we explained we would like to build a retirement home if we buy the 3.5 acres, he said, "That might be all right if you don't cause no trouble." However, we would want to pave the dirt road because in rainy weather it could become dangerous. Is there any way we can force the neighbor to sell us a permanent easement? --Dean W.

DEAR DEAN: Possibly. You certainly don't want to risk buying that landlocked land without a permanent recorded road access easement.

Purchase Bob Bruss reports online.

More stories by Robert J. Bruss

Unusual strategy to profit from flipper houses

No way to avoid revealing condo problems

Quiet title lawsuit can clear title of missing owner

How to buy your next home for nothing down

Marriage threatens group real estate investments

Speculator investors make condo purchases risky

>>More
The general rule on landlocked parcels, depending on state law, is the owner of the landlocked property has a right of access to a public road. However, to acquire such access you must be able to prove at one time in the past both the landlocked parcel and an adjoining parcel with road access had common ownership.

The legal theory is that when the property was subdivided, the owner forgot to provide road access to the landlocked parcel.

This is not a do-it-yourself project. You need to consult an experienced real estate attorney, and a title researcher, to determine if you meet the requirements for an easement by necessity. If not, your best alternative is to buy a permanent easement over the neighbor's land. Cash usually talks.

CAN A QUITCLAIM DEED SIGNED BY MISTAKE BE UNDONE?

DEAR BOB: I refinanced my home to lower my interest rate and the payments. At that time, I thought my grandson should co-sign because he was making part of the payments. By mistake, I signed a quitclaim deed giving him right of survivorship. How can I get my property back? My daughter (my grandson's mother) will inherit the home in my will. --Alice McC.

DEAR ALICE: For your grandson to co-sign on the mortgage obligation, the lender probably required him to be on the title. That is probably why you were presented with the quitclaim deed conveying an interest in the property to your grandson.

If you had not signed that quitclaim deed, you probably wouldn't have received the new mortgage.

Although a title mistake can be "undone," you might not want to do that. You and your grandson should consult a local real estate attorney to discuss the consequences. He might stop paying part of your mortgage payment if he can't claim the tax deduction because he is no longer a co-owner.

HOW TO ESTABLISH A PAST STEPPED-UP BASIS

DEAR BOB: My wife died in 2003. We lived in our house for 35 years and I continue living in it today. Having read your articles about stepped-up basis, I realize if I decide to sell, this will be very important to have my basis stepped-up as of the date she died. How do I prove the market value on that date? --Morton G.

DEAR MORTON: An easy way is to check with the local tax assessor's office to see what value they showed for your home as of that date. If that valuation is acceptable to you, ask for a copy and file it away in your important records file.

That's what I did when I inherited some property in 1991. In the local jurisdiction, each property is reassessed annually and I felt the assessor's market value estimate was reasonable. That became my adjusted-cost basis for the inherited property.

However, not all local tax jurisdictions reassess each year. Some assessments are far lower than market value. If that is your situation, I suggest you hire an experienced licensed appraiser to determine the 2003 market value of your home. The appraiser can do this by checking comparable 2003 sales prices of homes like yours.

(For more information on Bob Bruss publications, visit his
Real Estate Center).

Tax Breaks

Property Sales Tax Breaks
Realty Times
by Phoebe Chongchua

Real estate prices are being driven up by the purchase of second homes, which account for as much as 40 percent of the market.

"There's so much equity that's been built up throughout the last five years or more. People don't want to pay capital gains taxes which can be as high as 30 percent of the gain," says attorney David Greenberger who is president of 1031 Exchange Advantage, Inc.

He says investors can pay no sales tax on their investments regardless of whether or not they lived in them previously by using IRS Sections 121 and 1031.

Many people are familiar with IRS Section 121 -- the homeowners' exclusion. This law applies to your principal residence and allows a gain exclusion of $250,000 for single people and $500,000 for married people filing jointly. The gain exclusion funds do not have to be reinvested. There are requirements, such as the property must have been your residence for at least two years out of the past five-year period.

"[The 1031 exchange] can even be used on a personal residence that's converted into an exchange property, and the way you do it is you move out of your residence and a year later it can be an exchange property," he says.

A 1031 exchange is basically an unlimited tax break -- as long as you roll the money from the investment, non-owner-occupied property into another real estate purchase within six months, you will not incur property sales tax.

Combining Sections 121 and 1031 can create an even greater tax shelter for your real estate transaction. If a couple lives in a multi-family unit building, Section 1031 can be used to exchange the portion of the property that they do not live in and no taxes on the transaction are incurred when they purchase another real estate investment property. Section 121 can be applied to the unit the couple lives in.

"In this way, the unit they reside in is sheltered up to $500,000 in gain, and the remainder of the building is valued and exchanged as investment property under section 1031," Greenberger says.

Dividing the value between your residence and your investment property can be determined by the calculation of square footage or an appraisal of the unit that you are living in.

"You don't ever have to pay capital gains taxes if you plan it, but what is required is that your next move always be a trade into something else …" he says.

Using the 1031 exchange, you can buy an investment property and, after just one year you can live in it. Greenberger also says that you can sell one investment property and exchange it for more than one property.

He says, "The clear victory comes when the taxpayer who resides in a mixed-use property takes advantage of Sections 121 and 1031 to remove all taxes on gains and diversify into other properties." Greenberger adds "Clearly, living in a property that appreciates and does not present you with a tax bill when you leave makes for a very welcomed stay."

For more information on 1031 exchanges visit 1031exchangeadvantage.com.

Published: April 10, 2006

Tax

Property Sales Tax Breaks
Realty Times
by Phoebe Chongchua


Real estate prices are being driven up by the purchase of second homes, which account for as much as 40 percent of the market.

"There's so much equity that's been built up throughout the last five years or more. People don't want to pay capital gains taxes which can be as high as 30 percent of the gain," says attorney David Greenberger who is president of 1031 Exchange Advantage, Inc.

He says investors can pay no sales tax on their investments regardless of whether or not they lived in them previously by using IRS Sections 121 and 1031.

Many people are familiar with IRS Section 121 -- the homeowners' exclusion. This law applies to your principal residence and allows a gain exclusion of $250,000 for single people and $500,000 for married people filing jointly. The gain exclusion funds do not have to be reinvested. There are requirements, such as the property must have been your residence for at least two years out of the past five-year period.

"[The 1031 exchange] can even be used on a personal residence that's converted into an exchange property, and the way you do it is you move out of your residence and a year later it can be an exchange property," he says.

A 1031 exchange is basically an unlimited tax break -- as long as you roll the money from the investment, non-owner-occupied property into another real estate purchase within six months, you will not incur property sales tax.

Combining Sections 121 and 1031 can create an even greater tax shelter for your real estate transaction. If a couple lives in a multi-family unit building, Section 1031 can be used to exchange the portion of the property that they do not live in and no taxes on the transaction are incurred when they purchase another real estate investment property. Section 121 can be applied to the unit the couple lives in.

"In this way, the unit they reside in is sheltered up to $500,000 in gain, and the remainder of the building is valued and exchanged as investment property under section 1031," Greenberger says.

Dividing the value between your residence and your investment property can be determined by the calculation of square footage or an appraisal of the unit that you are living in.

"You don't ever have to pay capital gains taxes if you plan it, but what is required is that your next move always be a trade into something else …" he says.

Using the 1031 exchange, you can buy an investment property and, after just one year you can live in it. Greenberger also says that you can sell one investment property and exchange it for more than one property.

He says, "The clear victory comes when the taxpayer who resides in a mixed-use property takes advantage of Sections 121 and 1031 to remove all taxes on gains and diversify into other properties." Greenberger adds "Clearly, living in a property that appreciates and does not present you with a tax bill when you leave makes for a very welcomed stay."

For more information on 1031 exchanges visit 1031exchangeadvantage.com.

Published: April 10, 2006

Questions and Answers about Real Estate

Ask Realty Times
by Peter G. Miller


Question: I've been an investor for a little over a year. I own three single family homes, one in which I live and the others are for rent. I got into investing being very ignorant and ended up with some deals that are not performing. These properties are hurting me more than anything.

I've tried to sell but many people told me that the properties are overpriced and I was taken advantage of. Is there anything I can do besides sue? Is there anything I can do to get rid of these properties? If so, how can I find someone to help? I have learned a big lesson and now I am ready to make the best of what I have. I am struggling every month to make these payments. Is there a company that can help?

Answer: Forget about "companies" that can "help" -- people will only pay as much as the properties are worth -- and less if possible.

Who would you sue? The marketplace can and does change. As an alternative, why not consider some options: For instance, would any tenants want to buy? Can you rent rooms in your home to boarders? Can the properties be converted to other uses with higher values? If you sold at a loss, would that be better than your current situation? Would it make any sense to sell the residence and then move into one of the investment units? By any chance, is the residence financed with a purchase money mortgage in a state where you cannot be sued for a shortfall from selling the property at a loss?

Speak with an attorney for details.

Question: I "see" a woman aged about 25 to 30. She says she is from Texas and she wants my help. She says her husband drowned her. She just won't leave me alone. There was also a local boy named Josh. I capitalize his name out of respect. He has left. There was a woman named Karen, I am not sure where she went. Linda will not leave.

There are others that I don't talk to. One of the strangest things I ever saw was as I was washing dishes and a little girl, obviously from the early 1900s or late 1800s was there. When I turned around she asked me for a glass of water. I had been through other strange things, so I didn't think much of it. But when I turned back around she wasn't there. It was really scary. Now I am used to that kind of thing. In retrospect, that was nothing compared to what I see now. Seeing dead people is not much fun. The people I see now are okay, but they don't know where to go. They know they are dead but they don't know what to do. They come to me for help. What do I do?

Answer: I'm not sure this is a real estate question, but to the extent that it is there are what as known as "stigmatized" properties, homes which may have been the scene of a murder, suicide or where ghosts have been seen. The definition of a "stigmatized" property varies by state and many states have no rules regarding the issue.

Thus, if you're asking whether a home with ghosts can be sold without disclosure the answer is that you need to look at state rules. If you're asking how to address those you see and hear regardless of where you are, those are questions beyond the scope of this column. Speak with a counselor or cleric for further advice.

Question: In a multiple bid situation, could I put an offer in for say $125,000, or $1,000 over the highest bid, not to exceed say, $130,000?

Answer: Yes. What you're proposing is to make an offer with an automatic escalator clause -- and a bidding cap.

Escalator clauses are used in situations where a home has multiple offers. However, buyers need to use care. A cap is absolutely essential. Also, we wary: If there are two bids with automatic escalators they can just bounce off one another until the highest cap, or no cap, is reached. Before going further, ask you broker if he or she is sure that there are, in fact, other competitive bids.

Question: At this time I'm behind one month on my house payment. I would like some help on what I can do to prevent foreclosure. The reason for this is because I bit off more than I can chew. If you can give me any advice or someone that I can call please let me know.

Answer: First, you must immediately communicate with the lender, either directly or through an attorney. They may have programs in place to assist you. Second, consider listing the home for sale if this is something other than a temporary problem -- this may also encourage a lender to give you time to sell. Third, you may be able to hold off a foreclosure by declaring bankruptcy, but this is an awful alternative. An attorney can provide bankruptcy advice.

Question: I currently own a two-bedroom co-op apartment that's valued approximately $300,000. My credit is average and I have $15,000 cash to work with.

Right now I would love a purchase a three-family investment property for $595,000. How can I generate the cash to purchase this property but still keep my co-op since this is my primary resident? My income is $72,000 annually but I also live pay check to pay check since I am a single mom of two. I really want this property as an investment to help pay for my kid's college tuition.

Answer: Would it make any sense to sell the co-op and then live in one unit of the triplex? This way you could get owner-occupant financing plus two rental units to off-set your costs.

Does the rental property produce a positive cashflow? If not, how will you cover the bills? What about closing costs? Before going further, have a qualified real estate broker go through the entire transaction with you. You have the right idea, you need to see if this is the right property in terms of financing, economics, location, condition, etc.

Question: My ex-husband bought a house and the inspection revealed there was a leak in the above-ground oil tank which is in a basement.

Subsequently, he was told that it was fixed, and he bought the house. The first time he tried to buy oil for heat, he found out it wasn't "fixed" and the law states leaking oil tanks are not allowed to be fixed, and therefore real estate is not supposed to be sold with this problem and there could be a $25,000 fine

The company he signed a contract with to buy oil would not give him oil because of this problem -- the entire winter. It's freezing in our state, not to mention there being a threat of water pipes freezing.

The sellers had agreed to pay for a new tank and have canceled twice, saying they were looking for a better price. They told him not to put any oil in the tank as they were going to remove it. He didn't put any oil in the tank, and they did not show up as promised, now his furnace will not work -- still -- in the middle of winter. They called him today and now state they are NOT going to replace the tank, but have offered him $400 as compensation. It costs about $2,000 to replace.

Who is responsible? What is our recourse?

Answer: Did someone say the tank had been repaired? Is there a receipt for such work? Did you get an independent inspection?

The state or local environmental protection office may be able to provide specific information regarding what is or is not required in such situations. They may also be able to provide an inspection.

Question: I have home that I'd like to purchase, but the seller doesn't want to sell for two years because he has a prepayment penalty, so he giving us the option to lease for two years and than purchase. If we pay $1,200 a month and $600 goes toward the down payment, can the seller just spend that money and at end of two years give us a credit?

Answer: A lease purchase agreement is a complex arrangement and you should not go any further with this until you have paperwork prepared by an attorney of your choice. However, before you get to that point, speak with lenders. They may not give credit for money which is below a market-rate rental or money to buy which is not retained in an escrow account by the current owner. Ask how lease purchase credits are to be handled and show the owner, or have the lender show the owner, what's required.

How much is the prepayment penalty? In a market which is slowing in many areas, would not the owner be better off selling now? As to you, why lock-in a price now when it could be lower in the future? If the owner does not want to sell at this time you may be best off buying elsewhere or renting at a lower cost and saving your money.

Second Home Market

Second homes 40% of market
Updated 4/5/2006 3:10 AM
By Doug Miller

Americans snapping up second homes — as investments or vacation properties — accounted for four out of every 10 sales of existing homes last year, a record that helped drive the real estate market to new highs, according to a report being released today by the National Association of Realtors.
Nearly 28% of homes bought last year were for investment purposes, and an additional 12% were vacation homes, the figures show. Most of the buyers were baby boomers in their top earning years, looking toward retirement and hoping to build wealth or find a more desirable place to live.

"Baby boomers are such a powerful economic force," said Dave Jenks, co-author of The Millionaire Real Estate Investor. "They're using their wealth to go buy second homes."

The typical investment buyer last year was 49 years old with annual income of $81,400. He or she paid $183,500 for the median-priced investment home, up 24% from 2004.

"Real estate, over the past five years, has outperformed virtually every other investment vehicle," said Ron Peltier, president and chief executive of HomeServices of America, the country's second-largest residential brokerage firm. "A lot of people have just speculated in real estate."

The trend really started after 1997, when Congress changed the tax code, allowing most homeowners to duck capital gains taxes when they sold their homes. The exemption is $500,000 for married couples, $250,000 for singles, if it was their primary residence for two of the past five years.

Under the old system, the only way to avoid the tax was to "roll" the gains into another home of equal or greater value. Americans bought bigger and costlier homes. But now, they can downsize and use the equity built up in their homes to buy second homes.

"That's what spurred all this on in the beginning," says David Lereah, the NAR's chief economist. "It's like all the stars are aligned. The tax situations helped, but at the same time, baby boomers were entering their peak earning years. That's why we just boomed in second homes."

He thinks the trend crested in 2005. With rising interest rates, tighter lending standards and slower price appreciation, Lereah expects second-home sales to drop this year to 30% of all existing-home sales, and maybe into the 20% range.

"What's going to be leaving the market right now are the speculative investors who came into the market and were trying to flip homes," he said. "They were buying one, two, three or four properties at a time, and that was distorting the numbers."

Sales of vacation homes, though, are expected to stay strong for years, because the youngest baby boomers are only 42 this year.

The typical vacation home buyer last year was 52 years old, earning $82,800 a year, and purchased a property that was about 200 miles from the primary residence. The median price was $204,100, up 7.4%.

More than three-fourths of the buyers had no interest in renting their property. About 20% said it would one day be their retirement home.

Joe Klein and his wife bought their first vacation home last year on Lake Wabedo in Minnesota, three hours from their primary residence. He says he might like to retire there but might have to persuade his wife.

"It's something that we could hand down to the kids," says Klein, 42, a program manager for a medical company. "But secondly, I see it as an investment. If we had to, we could sell it to help pay for their college."

BUYING SECOND HOMES

As Baby Boomers hit their peak earning years, they are buying up second homes for investments or vacation properties. Last year, second-home purchases accounted for almost 40% of all home sales (in millions):

Vacation

2003 0.8

2004 0.9

2005 1.0

Investment

2003 1.6

2004 2.0

2005 2.3

Source: National Association of Realtors

Nothing Down

How to buy your next home for nothing down
'Hard part is making the payments'
Friday, April 07, 2006
By Robert J. Bruss
Inman News

Are you old enough to remember Robert G. Allen's bestseller real estate book "Nothing Down" from the early 1980s?

I'm showing my age, but I vividly remember that book because a) it explained dozens of creative real estate finance methods, and b) I actually used several of those techniques to buy profitable property for nothing down.

Purchase Bob Bruss reports online.

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Most of those methods are still viable. But for the majority of today's home purchases, there is no longer a need to use creative seller financing and other innovative methods.

Today's mortgage lenders have become very savvy about the profitability of making low- and no-down-payment home loans, even to borrowers with poor credit. Last year, according to the National Association of Realtors, over 30 percent of home sales involved 100 percent financing in one form or another.

THE DEFINITION OF "NOTHING DOWN."

In real estate "nothing down" means zero cash from the buyer's pocket. However, it doesn't mean the seller won't receive 100 percent cash for the home. Personally, I bought several zero-down-payment houses where the sellers walked away with all-cash.

Nothing down really means the buyer is borrowing the entire purchase price.

To illustrate, when you read in the newspaper that a commercial property sold for $50 million, do you think the buyer paid $50 million cash from his savings account? Of course not. Using a combination of a first mortgage, perhaps a second mortgage, plus a bank credit line, the investor-buyer probably didn't even pay the closing costs from his pocket. The same procedures apply to home purchases.

BUYING A HOME FOR NOTHING DOWN IS EASY.

If you are in the market to buy your personal residence, but you are a little "cash-challenged," don't let that stop you from purchasing for zero cash from your pocket, just like the real estate tycoons.

Although not every mortgage lender offers zero-down-payment mortgages, a savvy mortgage broker can arrange your no-cash home purchase. Especially if you are a first-time home buyer (defined as not owning a house or condo within the last two years), most mortgage lenders offer extra-easy home finance plans.

But there's a catch. You will need 1) a reliable source of income, and 2) a good credit score. Many lenders now offer "stated income" mortgages where, with good credit, you don't even have to prove your income, such as with W-2s or tax returns.

If you qualify, and many home buyers can, lenders will gladly finance 100 percent, sometimes even up to 125 percent, of your purchase price. But you will probably pay an above-market interest rate, often including PMI (private mortgage insurance) premiums. In other words, "nothing down" isn't cheap.

HOW TO DETERMINE IF YOU ARE A "WELL-QUALIFIED BUYER."

If you pay attention to those "no cash required" radio and newspaper ads for some new houses and condos, in the disclaimer you will usually spot the words "well-qualified buyer." That means you must have good income and good credit.

To check your credit reports from all three national credit bureaus, and determine your FICO (Fair Isaac Corporation) score which most lenders use to rate you as a "well-qualified buyer," just go to www.myfico.com.

For $44.85 total, you will receive your three credit reports, and your FICO credit score. Each credit report will be different, so take time to compare them and follow the instructions to correct any errors.

Or, at no cost, you can obtain all three of your credit reports at 1-877-322-8228 or www.annualcreditreport.com. However, you will not receive your very important FICO score at this free source.

After checking your credit reports and FICO score, the next step is to get written pre-approval for a no-down-payment mortgage. Most major mortgage lenders offer this service, or a mortgage broker can obtain a lender's pre-approval written mortgage commitment at a low or zero up-front cost. To obtain a zero-down-payment mortgage, most lenders require a FICO score of at least 680.

Armed with your lender's written pre-approval mortgage promise (subject to reasonable conditions, such as appraisal of the home you decide to buy), then you can shop with confidence knowing the maximum mortgage you can obtain.

But don't settle for a lender's worthless "pre-qualification" letter, which just means, "We think you can qualify for a mortgage but we really haven't checked you out yet."

HOW TO BUY A HOME WITH 100 PERCENT FINANCING.

However, if you can't qualify for a no-down-payment mortgage, don't give up. There are many alternatives. For example, many buyers' real estate agents recommend 80-20, 80-10-10, or 80-15-5 mortgage choices. The 80 means the lender makes an 80 percent first mortgage, and a 20, 10, or 15 percent second mortgage, often in the form of a home equity loan.

If you can make a 5 to 10 percent cash down payment, that makes obtaining financing even easier. A special advantage of keeping the first mortgage at 80 percent or less of the home purchase price is you will avoid the dreaded PMI (private mortgage insurance) premiums.

However, in the right circumstances, "seller financing" might be your best and least expensive choice.

Large real estate fortunes have been earned with this method. For example, real estate tycoon, John Schaub, reports in his recent bestseller book, "Building Wealth One House at a Time," he never obtains bank mortgages when buying.

Another example is small-town realty mogul, Jay DeCima, who explains in his best selling, "Start Small, Profit Big in Real Estate," book why he buys ugly run-down houses, which no mortgage lender, except the seller, will finance.

LEVERAGE ADVANTAGES OF NOTHING DOWN.

Another name for buying real estate with little or no cash is "high leverage." It simply means the borrower controls the entire property with a small amount of cash.

The big leverage benefit is usually a high percentage profit-per-dollar invested if the property goes up in market value due to capital improvements or sales price appreciation.

For example, suppose you buy a house or condo for $200,000 with nothing down. Because of your good income and good credit, the mortgage lender approves a $200,000 mortgage. Suppose that house appreciates in market value by 5 percent annually, or $10,000 in the next 12 months. What percentage return is that on your investment? The correct answer is "infinite," because your only out-of-pocket expense was probably for closing costs.

However, suppose instead you paid $200,000 cash for that same home and it appreciates the same 5 percent in market value ($10,000) during the next 12 months. Now your return on investment is a mere 5 percent. Of course, you avoided the tax-deductible mortgage payments, so those savings should be added to your return.

As the years go by, the advantages of high leverage on your home usually become greater each year. Of course, there is also risk, especially if you have to sell the home within the first five or 10 years when you don't have much equity.

SUMMARY: There are many advantages, and a few disadvantages, of buying a home for nothing down. But the pros usually outweigh the cons. However, as Allen often said in his "Nothing Down" lectures, "Buying real estate for nothing down is easy; the hard part is making the monthly payments."

(For more information on Bob Bruss publications, visit his
Real Estate Center)- www.inman.com/bruss

Second Home Sales

Second-home sales at all-time high
Vacation homes and investment properties show double-digit growth in 2005.
By Les Christie, CNNMoney.com staff writer
April 5, 2006: 10:36 AM EDT

NEW YORK (CNNMoney.com) - Are home still a good buy? Americans seem to think so -- they bought second homes, both as vacation properties but especially for investment purposes, in record numbers last year.

There were 3.34 million second home sales in the United States last year, up 16 percent from 2005, according to a report released Wednesday by the National Association of Realtors (NAR).

Nearly 40 percent of all home sales were for second homes, up from 36 percent the year before -- 27.7 percent of all home purchases were for investment (compared with 23 percent in 2004) and 12.2 percent were bought as vacation homes (13 percent in 2004).

"The baby boom generation is driving second home sales -- they're at the peak of their earnings, interest rates remain historically low and boomers want to diversify investments," said David Lereah, NAR's chief economist.

Vacation homes more expensive and more distant
Vacation homes cost more than homes bought for investment. The median price paid for a vacation home was $204,100, up 7.4 percent from 2004, while investment homes cost a median of $183,500, up 24 percent.

The buying of investment properties continues a trend that started with changes in tax laws in 1997. Previously, when homeowners sold their primary residences, the only way to avoid capital gains taxes was to roll over gains into another, more expensive home. Now, couples can claim a $500,000 exemption on sales of primary residences, enabling them to downsize into less expensive houses and apply the difference to second home purchases.

According to Lereah, vacation homes once constituted the majority of second home purchases, but the soaring real estate market has attracted more Americans to real estate investing.

Technically, many of the homes bought for investment cannot be classified as "second" homes, since many investors have purchased multiple properties. About 4 percent of home owners own three or more properties.

Typical buyers
The NAR report said that the profile of typical vacation home buyers was that they were 52 years old with earned income of $82,800. Their getaways were usually either within 100 miles of their primary residences (47 percent) or more than 500 miles away (43 percent).

Investment home buyers were, on average, a little younger (49 years old) with slightly lower incomes ($81,400). The biggest contrast was that investment buyers usually shopped much closer to their primary residences; the median investment home purchase was just 15 miles away.

The biggest consideration for vacation home buyers was that the properties should lie near recreation facilities such as beaches, mountains or golf courses. Midwesterners purchased more vacation homes than residents of any other region; they accounted for 33 percent of al sales. Southerners bought 30 percent of all vacation properties, Westerners 20 percent and Northeasterners 17 percent.

Southerners bought more for investment (38 percent of all sales), with 24 percent each accounted for by Midwesterners and Westerners and just 15 percent by residents of the Northeast.

Lereah said, "Vacation-home sales will remain strong for the foreseeable future given the fact that baby boomers are favorably positioned in terms of affordability, as well as being at the stage in life when people are most interested in making that kind of a lifestyle purchase."

Investment homes purchases, however, may drop, according to Lereah, as stagnant prices and rising interest rates will discourage buyers.

Second Homes

Americans buying record number of second homes-NAR
Wed Apr 5, 2006 1:30 PM ET
By Melissa Bland

WASHINGTON, April 5 (Reuters) - Americans bought a record number of second homes for vacation and investment last year, some 40 percent of 2005 total sales, a trade group said on Wednesday.

And with baby boomers at the peak of their earning potential, the push to snap up vacation homes is unlikely to reverse soon despite a broader housing slowdown, the National Association of Realtors said.

The group said vacation home sales rose 16.9 percent in 2005 to a record 1.02 million units from 872,000 in 2004. Purchases of homes for investment, chiefly rental income, rose 15.7 percent to a record 2.32 million units last year from 2 million in 2004.

NAR said Americans snapped up 3.34 million second homes in 2005 -- 27.7 percent for investment and 12.2 percent for vacation. That was up 16.0 percent from 2.88 million in 2004.

Second home purchases also made up a larger chunk of the total, rising to 39.9 percent of total residential real estate transactions from 36 percent the prior year.

"The baby boom generation is driving second home sales," NAR chief economist David Lereah said in a statement.

"They're at the optimum point in life when people become interested in second homes, they're at the peak of their earnings, interest rates remain historically low and boomers want to diversify investments," he added.

The buyer profiles for the two types of homes were similar, the group said.

According to the report, the average investment-home buyer in 2005 was 49 and earned $81,400 a year. For those seeking vacation retreats or housing for children in college, the typical age was 52 and income at $82,800.

Americans paid more for their second properties as well, driving the median price of a vacation home to $204,100 in 2005 from $190,000 in 2004, while the cost of a typical investment property climbed to $183,500 from $148,000 the prior year.

"Vacation-home sales will remain strong for the foreseeable future given the fact that baby boomers are favorably positioned in terms of affordability, as well as being at the stage in life when people are most interested in making that kind of a lifestyle purchase," Lereah said.

"On the other hand, investment home sales are likely to decline this year, in part because of higher interest rates," he added. Still, he said the long-term outlook for second homes sales was positive "because more people will be moving into the prime years for buying a second home."

NAR said 33 percent of 2005 vacation home purchases occurred in the Midwest, followed by 30 percent in the South, 20 percent in the West, and 17 percent in the Northeast.

In the category of investment homes, 38 percent were bought in the South, 24 percent in each of the Midwest and West, and 15 percent in the Northeast.

The NAR report was based on more than 11,000 responses to surveys to collect data on market share, buying activity, demographics and buyer preferences.

© Reuters 2006. All Rights Reserved.

Foreclosures

Anxiety, Foreclosures Up as ARM Rates Rise

(April 3, 2006) -- As interest rates rise, thousands of Americans with adjustable rates mortgages are having trouble paying the mortgage.

Nearly 25 percent of mortgages – 10 million – carry adjustable interest rates, many of them with subpar credit ratings, according to the Mortgage Bankers Association.

Of the 7.7 million household that took out ARMS over the last two years to buy or refinance, up to 1 million could lose their homes through foreclosure over the next five years because they won’t be able to afford their mortgage payments and their homes will be worth less than they owe, according to First American Real Estate Solutions, a real estate data provider.

In West Virginia, Alabama, Michigan, Missouri and Tennessee, about one in five homeowners with high-interest, subprime ARMs was at least 30 days late at the end of last year, the Mortgage Bankers calculate.

Source: USA Today, Noelle Knox (04/03/2006)

Contingencies in Agreement

Put every contingency in your offer to buy home

By CANDY McCAMPBELL
For The Tennessean
Sunday, 04/02/06

A house is one of the biggest investments you'll likely ever make, so your purchase offer needs to cover all the bases: the right price, any contingencies needed and date of possession.

Most real estate agents use a standard contract that includes all the basics, such as the price, property description, closing and occupancy dates, title insurance, termite inspection, home warranty, who pays which costs, a default provision and payment of commissions.

It also should include three important contingencies: one for obtaining financing, one for a successful home inspection and a third for selling your existing home. If not, you could find yourself committed to buying a house without a way to pay for it. Or buying a house with costly problems. Or buying a house while you still own your existing home.

"Unless you have all the cash in your pocket, you need to make sure you have a contingency of a loan you can afford," says real estate attorney Alan Mazer, partner in Saturn and Mazer Title Services.

"I even suggest making it contingent on getting a loan at such-and-such an interest rate," he says. That way, a spike in interest rates won't throw your budget out of whack.

The more details you can stipulate in the offer, the better, says Lindy Gaughan, co-owner of Re/Max Choice Properties in Hendersonville.

"It's safer for the buyer if something should change," she says.

You can also make the offer contingent on:

Appraisal. You want the house to appraise for the sales price or higher.

Home inspection. "Every buyer needs a home inspection to see what they're actually buying," says Jim Terrell, real estate agent with The Pilkerton Co. If problems show up, buyers could void the contract, have the owner fix the problems or get credit on the purchase price to make the repairs, he says.

Sale of your current home. If you have a contract on your home and your buyer is approved for a loan, attach that to the offer, Gaughan says. If you don't have a contract, you may reach agreement on everything else in your offer but the seller could continue to try to market the house, giving you first right of refusal if another offer comes in.

A walkthrough the day before closing. "You want to make sure the house is in the same condition it was in when you saw it," Terrell says.

Possession. It's best to take possession of the property (including an exchange of all keys) at closing, but it's not always possible, Terrell says. If the seller stays later or the buyer moves in early, sign a lease so you know who is responsible for things such as taxes, repairs and the condition of the house, he and Mazer say.

What is there stays there. "Don't presume that if something looks like part of the house, it's going to stay," Mazer says. "If your heart is set on some feature remaining, put it in the offer." This could include anything from the washer/dryer to a chandelier or ceiling fan.

A septic inspection. Houses in many suburban areas have septic tanks instead of sewers, Gaughan says.

TERRELL GAUGHAN MAZER - The Tennessean

Second Homes

Tax code helps spark boom in 2nd homes
Nation's Housing
Originally published April 1, 2006

If you are thinking about buying a second home this spring - or you bought one in the last couple of years - you are part of a major transformation under way in the real estate market.

The annual number of second homes purchased in the United States doubled between 2000 and 2004, according to new research. The boom is being driven in part by demographics - mainly a flood tide of equity-laden baby boomers - and in part by a largely unexpected ricochet effect of tax law changes in the late 1990s.

The latter factor was explained by Keunwon Chung, a statistical economist at the National Association of Realtors, who recently studied a vast pool of federal data on hundreds of thousands of second-home mortgage closings.

When Congress amended the federal tax code in 1997 to permit up to $500,000 (for married couples) and $250,000 (for singles) of gain on the sale of a primary home to be spared from taxation, observed Chung, "homeowners did not have to buy expensive [replacement] homes anymore."

Under prior law, the only way to avoid capital gains taxes was to roll over sales gains to progressively larger and costlier homes.

The amended tax code, by contrast, allows primary home sellers to buy a smaller, less expensive primary (replacement) residence while using a portion of the $500,000 or $250,000 tax-sheltered gain to buy or make a down payment on a second home - for use either as a recreational property or as an investment vehicle.

For example, a married couple pocketing $500,000 tax-free from the sale of their longtime family home might use part of the proceeds to downsize into a condominium unit in the center city, and then use the remainder to purchase a vacation retreat an hour or two away.

Call it the downsize-and-add-a-second-home strategy - sort of a real estate billiards shot propelled by tax-free money. Whatever you call it, Chung's study suggests that the trend is hot, and likely to stay that way for years.

According to Chung, second homes represented just 8.6 percent of all residential mortgages - 405,000 individual purchases nationwide - that were closed in the year 2000. By 2004, the number of second-home purchasers had more than doubled to 881,000 and the market share had surged to 14.2 percent.

Who's selling and buying? Primarily baby boomers, according to Chung, and especially boomers with above-average incomes. Whereas the average household purchasing a primary home in 2004 had an annual income of about $61,000, the average second-home buyer had an income of about $102,000, nearly 70 percent higher.

Part of the motivation of second-home purchasers has been to diversify household financial assets.

Second homes, along with primary homes, saw an average 55 percent gain in price appreciation between 2000 and 2004, according to Chung, whereas the Standard and Poor's 500 index declined by 15 percent.

"As an investment choice, the housing market presented an attractive alternative" to a stock market that sagged sharply from its 2000 dot-com highs and has only recently begun to recover, Chung said.

Where are boomers and others investing their second-home dollars? Chung's study found that a dozen states have attracted exceptionally high rates of purchases and cumulative growth during the past four years, whether for recreational use or investment.

In Hawaii, nearly 1 of every 3 purchases made between 2000 and 2004 was for a second-home getaway or investment unit.

In Florida, the proportion was nearly 1 in 5. Arizona (18 percent) and Nevada (17 percent) also saw significant activity, as did other prime recreational getaway states such as Idaho (13 percent), New Mexico (12 percent) and Utah (10 percent).

The District of Columbia - where 1 of 10 home mortgage closings between 2000 and 2004 was for a second home, almost always in the form of rental condos or townhouse units - was a surprise contender on the national list. The number of such units financed in D.C. grew by a stunning 187 percent during the four-year period studied by Chung.

California and Washington, both with 9 percent shares of total loan closings, Maryland (8 percent) and Virginia (8 percent) were all high-growth states for second homes or investor units.

How long can the second-home boom continue? Chung says as long as "boomers are still in their peak earning years and they can afford some homes for vacation purposes or investment."

Copyright © 2006, The Baltimore Sun

Guidelines for real estate market

Rules of real estate changing as market cools
Before you buy, sell or invest, check out these guidelines to get the best housing deal

By Ruth Simon
The Wall Street Journal
April 1, 2006

As the spring selling season moves into high gear, the cooling housing market is upending the conventional wisdom that guided buyers and sellers during the housing boom.

The changing dynamics have implications for a variety of players in the real-estate market.

The number of homes for sale has climbed about 30 percent over a 12-month period, reaching its highest level in nearly 10 years, according to the National Association of Realtors. The group recently predicted sales of existing homes would drop 5.7 percent this year versus a 4.4 percent gain in 2005.

Higher mortgage rates are making houses less affordable in many metro areas. Rates on 30-year fixed-rate mortgages now average 6.35 percent, according to Freddie Mac, with rates on adjustable-rate mortgages moving up even faster.

What this new environment means for buyers and sellers varies from market to market. To be sure, sales are strengthening in some markets, including Albuquerque, N.M., and Indianapolis. But in many parts of the country, after several years of sellers calling the shots, 2006 is shaping up to be a market in which buyers are gaining bargaining power.

What follows is a look at what this means for different groups of buyers and sellers:
Sellers

Say goodbye to the days when sellers could simply look at what their neighbor's house sold for and then list theirs for 10 percent more.

Overpriced homes may never even catch the eye of their intended audience. That's because buyers and brokers increasingly rely on computers to screen listings based on price, size and other parameters when new properties come to market.

David D'Ausilio, a broker- associate with Re/Max Heritage in Westport, Conn., is counseling his clients to price their homes in the "bottom 25 percent" of comparable homes and cut their asking price by 3 percent to 5 percent if the listing doesn't generate several showings or written offers within three weeks.

Brokers also are telling sellers to fix problems that buyers might have overlooked in a more heated market.
First-time buyers

First-time buyers can be more thoughtful about their purchases and negotiate for a lower price, a more flexible move-in date or incentives such as seller-paid closing costs.

Some brokers are advising first-time buyers to leave a financial cushion instead of stretching as much as possible and counting on rising home prices to bail them out. They are also asking sellers to help with closing costs.
Move-up buyers

Move-up buyers face the delicate task of balancing a purchase with a sale. A growing number of buyers are making offers contingent on selling their current homes. But such offers often are frowned at because these deals are more likely to fall through.
Relocaters

Employers are looking for ways to ensure that homes don't languish on the market when an employee relocates. The number of company-ordered appraisals is growing as employers seek to get the price right before a house goes on the market, says H. Cris Collie, executive vice president of Worldwide ERC, an association of companies and professionals that relocate employees.

Collie expects employers to more aggressively enforce policies that require transferees to price their homes close to the appraised value. He also is seeing renewed interest in "loss on sale" programs, which compensate people who are relocating for losses if they sell below the purchase price.

Some relocation experts also advise transferees to shy away from buying a home in a new development because they will be competing with new construction when they sell.
Investors

Investors used to seeing quick profits in once-hot markets may be disappointed. In some new subdivisions, dozens of similar investor-owned homes are competing for buyers, says Craig Beggins, president of Century 21 Beggins Enterprises. "If you have any way not to sell right now, don't," Beggins tells investors. "If the neighborhood is brand-new and no one is living there, my advice is to rent it if they can."

But the decision to sell or rent can be tricky. Rental homes typically don't show well, says Bob Hamrick, broker-owner of Coldwell Banker Premier in Las Vegas, and often must be vacated and given fresh paint and carpet before going on the market.

LATEST STRATEGIES

As housing markets around the country cool, brokers are recommending new tactics:

• Some brokers are advising sellers to price their homes in the bottom 25 percent of comparable properties.

• First-time buyers shouldn't overly stretch their finances, expecting rising prices.

• Relocating employees should look for a home that will be easy to resell if they are transferred again soon.

Copyright 2006 IndyStar.com. All rights reserved