Investing

Getting into Real Estate for the Long Haul
by Al Heavens
Realty Times
Published: September 28, 2006


They represent the future of real estate in this time of uncertainty -- 17 bright-eyed and eager students, median age 40, sitting for three hours in a classroom while I click slowly through a 50-slide Power Point presentation with embedded video and audio.

These are small investors, a mixed group of young and old, Realtors and nonRealtors, and all ethnicities -- a true mix of the modern-day urban market.

They want to know what I can tell them about renovating one-to-four unit properties cost-effectively, whether or not to hire an architect, what to look for in a contractor, what will put their rentals a cut above the others without breaking their budgets.

These are not flippers. These folks are in for the long haul, agreeing with some expert who told me this week that this isn't the time to experiment with real estate but to get serious about it.

One of the experts whose video was embedded in the Power Point was Carl Dranoff, a developer who was one of the pioneers of the warehouse to loft conversion boom on the late '70s to mid-'80s in many of our older cities.

When interest rates were hovering at 18 percent and creative financing was in its infancy, Dranoff turned his attention to the rental market, and that what these former factories and warehouses became. He attracted the same kinds of renters who are buying urban condos these days -- young single or recently married professionals and a few brave empty nesters willing to live on the then-mean streets of the city.

Although he focused on big projects, a lot of what Dranoff recommends can be tailored to smaller projects. On the top of his is location: Look at emerging neighborhoods that are not yet at the forefront of development. Look at smaller projects in areas where large ones are changing the equation.

Don't expect to find bargains at the intersection of major city streets.

Look for buildings with good bones: High ceilings, big windows, wide-spaced columns. For residential use, the shape of a building is important, since light can only penetrate a space up to 20 feet.

The larger the windows, the bigger the ceiling height, the more opportunity for being "sun-splashed."

Look for character-defining features, such as brick walls that can be restored.

Columns are another character-defining feature. Columns were used in lieu of beams, with the load carried by the flair-out at the top of the column.

The problem with columns is that they are often in the wrong place, so you have to adjust the spatial layout to accommodate them.

Remember: Because you are trying to accommodate architectural features with living space, "you can't make every apartment perfect," Dranoff said.

Lay out each room of an apartment with furniture; otherwise, you end up without door-swing clearance or with a piece of furniture without enough walk-by clearance.

Expect to install brand new systems: Plumbing, heating, ventilation and air conditioning. Even technology has to be introduced -- high-speed Internet access or fiber-optic cable -- especially for those investors whose buildings will house a younger market -- especially grad students and dot.com professionals.

Dranoff is a proponent of the "gut rehab," or starting a renovation with a blank slate. That means, removing the interior down to the frame and starting over.

That way it's easy to start installing heating, cooling, ventilation, and plumbing systems.

You need to pay attention to ductwork, since it is often difficult to penetrate obstacles such as concrete walls with a duct.

That's why you need a mechanical engineer to design the system, and have that person handle obtaining the permits and the equipment suppliers needed for the work.

To the neophyte investors, Dranoff recommends starting small.

Buy a small building. Surround yourself with good people: a lawyer, architect, plumber, electrician, and more who can be depended upon for advice and to show up when needed.

Know your market: Who is the end user? If you renovate to sell, make sure you have a good real estate firm. If you renovate to rent, have a good leasing agent.

Always allow more time for your project. If you believe it will take four months, make it six, because you never know what you'll find behind the walls.

And, for the same reason, add 10 percent to your budget.

Finally, be very wary of buildings with problems. Environmental issues can make a renovation project less than cost-effective, he said.

Sell Your House

How to Sell Your Home...In One Week!
Barbara Corcoran Takes on a Challenge to Sell a House in a Week - Real estate expert says you need to clean up the clutter and let the light in to sell your house
Sept. 26, 2006

The Freunds live in a typical bilevel home in Tom's River, N.J.

They moved into the house in 1978, paying $52,000.

"We moved to Tom's River 28 years ago when we had two small children, and now the neighborhood's changing again, and it's turning back into a young family neighborhood again," Ginnie Freund said.

The couple are moving to Florida for retirement, but their home has been on the market for six months.

"We made a decision to sell our home a year ago. … But our son was still in school," Cliff Freund said. "And so we delayed actually putting the house up on the market until April, and now we find ourselves in basically a down market with a challenge to sell our home."

Sell This House in a Week?

"Good Morning America" real estate contributor Barbara Corcoran is taking on the Freunds' challenge; she will try to sell their home in just one week.

What makes a house hard to sell?

Here are a few things Corcoran noticed first about the Freunds' house.

The outside is the first impression a buyer will get. The Freunds have a great front yard, with mature trees and a well-tended garden.

There are a few things she would change, though.

"I would take the plantings out underneath that pear tree just because it foreshortens the yard and makes the whole thing look smaller," Corcoran said.

"Secondly, this driveway, which is a status symbol, beautiful driveway, has a lot of stains. I would steam clean this as well. A cheap thing to do but an important change," she said.

Corcoran also noticed the owner's name on the house — and that's a no-no.

"You want to get rid of anything that's personal in the house because you want the buyer to walk in and feel like it's theirs. So you want to get rid of anything personal," she said.

Inside the house, Corcoran immediately noticed some problems.

Get rid of the clutter. "There are three things wrong with this house, and it's true of every single room here," she said. "The clutter. There's clutter everywhere, and people can't see past clutter."

Let the light in. "Secondly, there's not enough light in this house, and yet it's a sunny house and that's because the curtain treatments are really heavy and they keep the light out. People love light."

Send your pets on vacation. "And last the house has an odor, and that's because they're living with two very loved cats, but on the day of the open house the cats have to take a little vacation so we won't know they're around."

Clean out the closets. "Every seller should know that buyers will open your closet, and they'll use it to judge how good your plumbing and electrical is. It makes no sense, but if they see a messy closet, they'll assume the inside of that house is not in good working order."

Every room needs a purpose. "The purpose of a room should be perfectly clear when a buyer walks in. This [spare] room, I'm not sure what the purpose of this room is, it's got an ironing board, a small sofa here. It should either be a den or a bedroom, and because it's not it's going to cost the seller a lot of money."

Tax Right Offs

Second Homes Can Be Taxing
by Lew Sichelman
Realty Times
Published: September 20, 2006


As every home owner will attest, owning the roof over your head is an extremely tax-advantaged proposition. But how use decide to use your vacation property is the key to how owning a second home can impact your bottom line.

What follows is intended solely as general guidelines and should not be construed as legal advice. Be sure to consult professional tax counsel before making any decision to purchase a second residence based either solely or in part on the tax aspects of home ownership.

Obviously, if your new home becomes your primary residence -- that is, you inhabit the place for more than 180 days a year -- you are entitled to all the benefits ownership entails. You can write off interest on your mortgage and property taxes, and you can add the cost of any improvements you make to your property to your basis, or cost. And when you sell, you can exclude up to $500,000 ($250,000 for single taxpayers) from the capital gains tax.

If your second home is going to be used purely as a vacation property for you, your family and other guests, it is considered your second home. You also can claim your mortgage interest and property taxes, and add the cost of improvements to your basis. But not the capital gains exclusion, which is limited to your personal residence, or main home. Only if you occupy a place full-time for two of the previous five years can you claim that exclusion.

It also is worth noting that you can claim only one vacation home. If you own more than that, you can deduct property taxes only on the second and subsequent vacation properties. So, if besides a place, say, in Florida, you own a ski chalet in Aspen and a hunting cabin in the Wisconsin woods, you can claim your full vacation home deductions on just one. Which one is your choice. But for the other two, only the property taxes are deductible.

If you plan to rent your vacation property, the tax rules governing rental real estate apply. However, if you plan to use the place yourself and also rent it to others, the rules are somewhat more complicated.

First, if the place is a pure rental, you are required to count as income all rents. A security deposit is not considered income if you plan to return it when the lease expires. But if you keep all or part of the deposit because the tenant leaves early or there is damage to your place, the amount withheld must be reported as income in that year.

However, if you collect the first and the last month's rent as well as a security deposit, the extra month's rent is considered advance rent and must be reported as income in the year it was received as opposed to the year it is due.

As an owner, you can deduct the cost of improvements to your principal residence but not the cost of repairs. As an owner of rental property, though, just the opposite is true. Landlords recover the cost of improvements by taking depreciation and by deducting repair costs from ordinary income. As the IRS views it, improvements add to the value of your property, prolong its useful life or adapt it to new uses. Repairs, on the other hand, is work done to your property to keep it in good operating condition but does not materially add to its value.

Other expenses that are deductible from rental income include advertising, cleaning, utilities, insurance, commissions, tax return preparation fees, travel expenses and local transportation expenses. However, the expenses incurred to obtain financing -- commissions paid to the mortgage brokers, for example, or recording fees -- must be amortized over the life of the loan.

If yours is a condominium or cooperative, special rules apply. Moreover, each form of ownership is treated differently.

With condos, you can deduct depreciation, repairs, upkeep, dues, interest and taxes -- as well as assessments for the care of the common areas that owned jointly by you and the other owners. But you cannot claim special assessments paid to a management company for improvements. You share of the cost of improvements is recoverable by taking depreciation.

With a co-op, you usually can deduct all the maintenance fees paid to the cooperative housing corporation. But you cannot claim a payment earmarked for a capital asset or improvement such as a parking lot or new roof. Those payments must be added to the cost basis of your stock in the corporation.

It also is worth noting that if you don't earn a profit from your rental, you can claim your expenses only up to the amount of your rental income. Moreover, you cannot carry forward to the next year the rental expenses that exceeded your income in the previous year.

If you occupy your home for part of the year and rent it to others for all or even a portion of the rest of the year, you must divide your expenses between personal and rental use based on the number of days used for each purpose.

A day of personal use is considered any day the property is occupied by you, another person who has an interest in the property, a member of your family or anyone with whom you have an arrangement that permits you to use another dwelling. Any day the property is used for personal purposes and rented -- in other words, the day you leave and your tenant arrives, or vice versa -- counts as a rental day. But days in which the property is available for rent but not actually rented do not count as days of rental use.

If you use the property and rent it for less than 15 days during the year, you are not required to report your rental income. In other words, your rental income is tax free. But you can't claim any rental expenses, either.

If you use the house more than 14 days or more than 10 percent of the days it is rented, your place is considered as "a vacation home used as a residence." In this case, if you have a net loss -- your expenses exceed your income -- you cannot use the excess expense to offset income from other sources. Instead, you must carry forward your loss to the next year to be treated as rental expenses for the same property. Realize, though, that unless you turn a profit in subsequent years, you may never get to claim the excess expense.

If you use your home for less than 15 days or no more than 10 percent of the number of days it is rented, the property is considered a "vacation home used as a rental property." Here, too, you must report and pay taxes on the income less your rental expenses. But if you have a loss, more complicated passive and hobby loss rules apply and you should seek professional counsel.

If you are new to the rental business, Uncle Sam allows you to write-off your start-up expenses. Among other things, these include the cost to investigate potential real estate markets, fees paid for various professional services (other than those paid to actually purchase a property) and even attending classes or real estate seminars.

These would be normal operating costs for an ongoing business, but they are considered start-up expenses when they are incurred before the business begins. But you can deduct no more than $5,000 in your first year of business. Anything over that amount must be claimed in equal amounts over the next 15 years.

You are allowed to deduct legitimate expenses -- travel, entertainment and other "fun" expenses don't count -- as start-up expenses up to the day you put the place in service; that is, the day you offer it for rent as opposed to the first day on which it is actually rented.

If you already own rental property, these are considered as costs incurred to expand your business and must be claimed as business operating expenses, not start-up expenses. And if you should change your mind and decide not to rent your new Florida digs, all bets are off. These costs become personal costs and are not deductible.

Bring Outdoors In

Outdoor Oasis, Always in Style
by Phoebe Chongchua
Realty Times
September 18, 2006


Creating an outdoor oasis is touted as the second most popular home remodel behind a kitchen makeover.

"We're bringing the inside out because island barbecues come with refrigerators, storage drawers, side burners. Our islands are [designed] so you can put CD stereos in them, televisions, mood lighting," says Frank Camarena, Cal Spas.

But with summer winding down and the seasons turning colder, is it too late to put this remodel in the works? Not if you plan to make your outdoor oasis useable 365 days a year by creating a sunroom.

While it may not matter much in sunny Southern California where an outdoor oasis consisting of a spa, pool and a barbecue island are rarely affected by the weather, in other areas of the country those amenities aren't much use during inclement weather.

"Being able to sit in your hot tub with one of our glass roof rooms [surrounding the area] watching the snow come down," is what Larry Chavez, Jr. says makes your outdoor oasis a real treasure year round.

A sunroom is an enclosed area that gives the feeling and look of bringing the outdoors inside by having a panoramic view through temperature and reflectivity-treated glass.

"We're fortunate to be a franchise for Four Seasons Sunrooms and they've got a patented exclusive glass technology called Conservaglass that makes it useable 365 days a year," says Chavez.

Sunrooms have evolved drastically over the decades. "They've evolved from being greenrooms for people to extended-living space," says Chavez.

Today, many homeowners are turning sunrooms into home offices, second bedrooms, and extra sitting rooms. Inside sunrooms homeowners are building pools, spas and other relaxing amenities. A sunroom is different from a standard room addition "because of the panoramic view that you can achieve with a sunroom, you get the real feeling of having an outdoor feeling but being protected from the [weather] elements, the temperature, the bugs," explains Chavez.

Whether you're considering an outdoor oasis or a sunroom, the most important things to consider are the size of space you want to dedicate to the addition, the glass technology that you'll use (if you're building a sunroom), and, as with any remodel, do your homework to find a reputable, trustworthy contractor to do the work.

The home improvement industry "has been plagued by the fly-by-night contractors -- here-today, gone-tomorrow, that promises a low bid, takes deposits and leaves town," says Chavez.

Creating a sunroom can "run the price of buying a brand new car. So it's a significant investment, so you want to have a product that is going to perform and be able to use it when you want to -- not when Mother Nature says it's okay to use it in terms of being too hot or too cold," says Chavez.

"Of course there are certain climates like Phoenix that any glass is not going to hold out that kind of heat, but with the energy efficiency of the Conservaglass you can effectively and efficiently heat or cool the room if you need to," says Chavez.

A final consideration, whether your outdoor oasis is enclosed as with a sunroom or left open, be sure that you devote enough space to the project.

"We've never had a customer come back and say we should've made it smaller but too often customers come back and say we should've made it bigger," says Chavez.

Published: September 18, 2006

Foreclosures

Prevent Foreclosure From Cashing You Out Of Home Ownership
by Broderick Perkins
Realty Times
Published: September 15, 2006

While a growing number of consumers are looking to cash in on the changing real estate market, another group is trying to figure out how to keep from cashing out.

The 115,292 homes nationwide entering some stage of foreclosure in August remains historically low, but the rate of increase in the number is becoming alarming. August foreclosures represented a 24 percent increase from July -- the second highest this year -- foreclosures are up 38 percent for the year so far and 53 percent compared to where they were this time last year.

Blame it on those nasty mortgage IEDs (Improvised Equity Devices) -- high leverage, high risk loans that are easy to come by, but financially explosive as time goes by.

Mortgage IEDs are typically ARMs, in a host of varieties, that typically start off with low rates, but, in this market, continually adjust upward. Along with the higher interest rate, so goes your monthly mortgage payment.

When the loans come with interest-only payment terms, if you only pay the interest and your home value shrinks, your mortgage could become larger than your home's value giving you no room to bail out without coming up with the cash to cover the difference.

"With home price appreciation continuing to decelerate and billions of dollars in adjustable rate mortgages projected to reset in the next few months, this month's increase could be the beginning of an upward shift in the foreclosures market," said James J. Saccacio, chief executive officer of RealtyTrac.

In August, states with both greater statistically significant numbers of homes entering foreclosure and high rates of increases in those numbers, included Colorado, Nevada and Florida.

Colorado foreclosure activity spiked nearly 60 percent in August from the previous month and the state documented the nation's highest state foreclosure rate for the sixth month in a row, with one new foreclosure filing for every 301 households. The state reported 6,079 properties entering some stage of foreclosure during the month, more than twice the number reported in August 2005 and the seventh highest number reported by any state.

With one new foreclosure filing for every 430 households, Nevada posted the nation's second highest state foreclosure rate for the third straight month, due largely to bad bets on housing made in and around Las Vegas. The state reported 2,016 properties entering some stage of foreclosure, a 24 percent increase from the previous month and more than three times the number reported in August 2005.

Once crawling with speculators who are now abandoning the Sunshine State, Florida saw foreclosure activity jump to its highest level of the year so far, with 16,533 properties entering some stage of foreclosure in August -- the most of any state and an increase of more than 50 percent from the previous month. The state's foreclosure rate of one new foreclosure filing for every 442 households ranked as the nation's third highest state foreclosure rate.

Five states, Florida, Texas, California, Ohio and Illinois accounted for 50 percent of the nation's foreclosure activity in August.

What should you do if you face the possibility of a late mortgage payment for the first time and want to avoid foreclosure?

Swallow your pride.

A head-in-the-sand approach will leave what's likely your No. 1 asset exposed to foreclosure. Contact the lender and discuss what you can do. Your goal should be to stop any lender action that could damage your credit and ultimately cost you your home and prevent you from owning another one in the immediate future.

A Freddie Mac/Roper survey found that 75 percent of delinquent borrowers recall being contacted by their mortgage servicer -- the company (the lender or the lender's agent) that collects mortgage payments, but 68 percent of them never call back.

Given most lenders take months before moving to foreclose, you have ample time to seek some kind of work out.


Once you make contact with your lender or servicer in a return call or a call you initiated, stay in touch with that contact until you are current. Document your contacts in writing so you and the lender have a documented record of your efforts.

If possible, consider restructuring or refinancing your loan -- but not to borrow more money. If you are saddled with two mortgages, do the math to determine if consolidating them will help. Likewise consolidate non-mortgage debts. Also consider extending a 15 year mortgage to 30 years or a 30 year mortgage to 40 years or longer. Examine how any restructured debt will play out if your situation worsens or improves. In each case, determine if restructuring is your best move, preferably before you miss a payment and damage your chances of landing a new loan.

Watch out for scams. When you are down on your dollars you are most vulnerable to debt-removal come-ons. You likely didn't get in over your head over night. Don't expect a quick fix.

Get financial counseling. Certified (by state and federal agencies and recognized trade groups) consumer credit counseling services are often free or offered for only a nominal fee. They will teach you your rights and work with you and your creditors, say, to temporarily reduce payments or otherwise work out a payment plan that will keep you housed and your credit relatively intact.

Know your rights. If you are in the military, you have special relief under the Soldiers and Sailors Civil Relief Act to stop the foreclosure and you may be eligible for a reduction in the interest rate. Similar relief is available to those affected by hurricanes, earthquakes and other natural disasters.

Procedural errors in the lender's foreclosure effort or lender errors when you acquired the loan could permit you to file a lawsuit to enjoin or stop the procedure.

If all else fails, bankruptcy is an option that can stop foreclosure, at least temporarily, and give you some leverage to resolve the foreclosure. Today's bankruptcy law also forces you into counseling. That's a good thing.

Selling the property is another end-game option. Consider selling the property out right as quickly as possible or deeding it to the lender in exchange for ending the foreclosure and minimizing the negative comments on your credit report.

Buying a Condo

Questions to Ask Before Buying a Condo
by Stuart Lieberman
Realty Times
Published: September 14, 2006

Condominium ownership is becoming quite popular throughout the United States. Especially, but not only, in our big cities.

It seems as if condominium developments might be a win-win for everybody. For homeowners, they can be a very efficient and sometimes luxurious way of enjoying a nice lifestyle.

For builders, they can represent a strong return on investment -- at least they did before prices started dropping a few months back. And in the case of high rise condominium construction, less property has to be purchased so the profit margin can be even greater.

Condominiums come in all shapes and flavors. As I indicated, it seems that the newest breed are found in the urban areas. This is partly due to the trend towards urban renewal and redevelopment that is found in many portions of this country.

Of course, many condominiums are also located in suburban areas. Often upscale, these units may be gated and every bit as exclusive and luxurious as their urban counterparts.

When I talk about condominiums, I don't literally mean just those developments that follow a condominium form of ownership. I'm also talking about similar kinds of legal entities such as homeowners associations.

The types of developments have different names in different states. However, the concept is often similar. Unit owners are responsible for and own the interior of the living spaces, often to the finished walls.

The association is responsible for the areas beyond the finished walls, typically the structures themselves, the plumbing, the common sewer lines, etc.

In addition, there are common elements that are controlled by the association. Typically, this might include pathways, recreation facilities, swimming pools, tennis courts, and anything else that is for the benefit of the association.

Associations may have common areas and limited common areas. A common area might be something like what was described above: a park, an internal street, a pool.

A limited common area might be a part of the lawn that's fenced off for the use of a particular unit owner.

These are general observations. Before you purchase you must read the master deed, the bylaws and every other governing document to find out what you will own and what you will not own.

It can make a big difference. As an example, some coastal condominiums have docks for the unit owners. A unit owner needs to understand who will own the dock he or she will be using. This issue is important for resale purposes, maintenance issues (which can be very costly in this example) and riparian ownership concerns.

Condominium projects, with little exception, look wonderful when first built. After they are occupied by property owners, control shifts from the builder to the individual unit owners. At that time, the unit owners run the condominium association and begin full control and responsibility for the common elements.

The success of the condominium association is directly related to the caliber of the association. If the association board of directors is functioning properly and has good legal counsel and other professionals, then the entire community may be an exciting, desirable place to call home.

On the other hand, if the association is falling apart, if nobody wants to volunteer, if it's not governed by capable, caring people, if it doesn't retain quality professionals, or it isn't properly collecting the monthly assessments from the unit owners, then the community probably won't be a desirable place to live. And people are probably not going to continue to live there.

Another concern is the extent to which the condominium is owner occupied. If most owners rent the units out, they may be collectively less concerned about day to day issues than if it is largely or entirely owner occupied.

All of this means that when you purchase a condo, you can’t just look at the quality of the construction, or whether the heater works. You cannot just do the kinds of things that you would do if you are purchasing a private, single-family home.

Above and beyond the normal kinds of things that you need to do, you absolutely must look at the condominium records and documents. Take a look at the minutes. Is this a properly run, stable organization? Are there constant resignations; does it appear that little ever gets accomplished?

In reviewing the association documents, find out if they permit special assessments if there are one time large expenditures. The association should be able to special assess if problems arise. Watch for association documents that unreasonably restrict the right to special assess. While this restriction might seem desirable, in reality an inability to special assess can ruin a condominium development.

Things that must get done might never get done properly.

Ask whether the association has a functioning covenants committee? These are the internal volunteers who enforce the rules and regulations. Are they fair and reasonable people? Do they go out on a regular basis to ensure that the rules and regulations are being followed? Or is this the condominium version of the wild west where unit owners do as they please and are never asked to follow the rules.

Rules are necessary in these communities and they must be fairly, even handedly enforced on a regular basis.

In addition to a thorough document review, talk to people who own units. What do they have to say. Look around the development. Does it appear to be well maintained? Are their annoying signs posted everywhere suggesting dysfunction?

There is no getting around the fact that due diligence in the case of a condominium purchase requires an examination of the Association records and legal documents. Examine them and ask questions before purchasing. I suggest having an attorney help you understand the association and its workings. This is an inexpensive service, and may prove down the road to be a very worth while investment.

Today's Real Estate Market

Don't Like the Market? Look Again
by Al Heavens
Realty Times
Published: September 14, 2006

It's never easy to be the messenger of not-so-good news, but it apparently has fallen upon "the media" to bear the bad tidings of the slowing market and all that it entails.

A business writer I know produced an exceptionally even-handed piece on the most recent Office of Federal Housing Enterprise Oversight report showing home prices increasing in the second quarter at a 4.7 percent annual rate, "the slowest since the fourth quarter of 1999."

The next day, a Realtor accused the writer of filling the newspaper with negativity and threatened to pull advertising -- an idle threat, since brokerages and builders tend to increase advertising in markets in which houses aren't selling themselves.

Advertising, in fact, is one of the methods sellers use to gauge whether the listing agent is doing his or her job. But that is a topic for another time.

Considering that most of this bad news is based on statistics compiled by the National Association of Realtors, Commerce Department, National Association of Home Builders, Fannie and Freddie and a host of governmental numbers-crunchers, maybe brokers and builders should complain directly to them.

A builder I know recently suggested that the more often economists and government analysts went on TV to announce that it was now a "buyers' market," the faster it would become a seller's market again.

Look. Because it is a buyer's market, the Realtor's other mantra, "Now is the time to buy," doesn't sound as much like hyperbole.

Now is the time to buy, because there's a lot on the market, fixed interest rates Sept. 7 were 6.47 percent and one-year Treasury-indexed ARMs just 5.63 percent, and when you consider that fixed rates when I bought my first house were at 18 percent, you'd be foolish not to.

In addition, there are a lot of mortgage products that will provide the first-time buyer with even lower rates and costs, if they shop around. Even in the 18 percent days, I was able to find a 13.5 percent fixed rate. With more houses on the market and less competition, buyers can take a little more time.

The media focusing attention on higher rates and slower sales surely frightens those easily spooked by a few negative numbers, but most aren't complaining about the media's attention.

I take my show on the road on occasion, and at a seminar in Orlando a few weeks ago, I asked the audience of builders if they had any complaints about the media.

One builder's hand shot up.

"A reporter from my local newspaper called and asked how new-home sales were, and I told her that they were slower than last year, but still brisk," he said. "The headline and the article the next day made it sound as if I was headed into bankruptcy."

Again, not everyone involved the production of that real estate article knows the intricacies of the business so there is margin for error. You should try explaining annualized rates or why we compare year to year rather than month to month sales and price statistics to the uninitiated.

I don't know how long what is euphemistically referred to as the "normal" market will last. Personal and professional experience tell me that it will change eventually; I remember the late 1980s and the mid-1990s and the surprise bump-up in interest rates in 1999 because of the Thai bat and the post-9/11 fears that never materialized -- so we just need to hang in and not panic.

What you should expect from the media is a blend of statistically based news and information on how to deal with the market those numbers are reflecting.

For example, if it is a buyer's market, tell buyers how to take advantage of it -- negotiate, take your time, get an inspection, shop around for the best mortgage rate.

Then let sellers in on the information they need to cope -- get a pre-inspection to anticipate problems, look at your neighbors' houses and try to make yours better, or offer reasonable incentives or allowances to attract interest.

If you want to invest in real estate, forgo flipping and consider the long-term, such as REITs that are consistent income producers (some did better than stocks at the height of the market).

If you want property, buy a condo that is lingering on the market and rent it until median prices return to their dizzying climb. The focus on condo construction and conversions have reduced inventory of rental property in many urban markets, and that's the situation you want to take advantage of until circumstances change.

They always do.

Foreclosures

Prevent Foreclosure From Cashing You Out Of Home Ownership
by Broderick Perkins
Realty Times
Published: September 15, 2006

While a growing number of consumers are looking to cash in on the changing real estate market, another group is trying to figure out how to keep from cashing out.

The 115,292 homes nationwide entering some stage of foreclosure in August remains historically low, but the rate of increase in the number is becoming alarming. August foreclosures represented a 24 percent increase from July -- the second highest this year -- foreclosures are up 38 percent for the year so far and 53 percent compared to where they were this time last year.

Blame it on those nasty mortgage IEDs (Improvised Equity Devices) -- high leverage, high risk loans that are easy to come by, but financially explosive as time goes by.

Mortgage IEDs are typically ARMs, in a host of varieties, that typically start off with low rates, but, in this market, continually adjust upward. Along with the higher interest rate, so goes your monthly mortgage payment.

When the loans come with interest-only payment terms, if you only pay the interest and your home value shrinks, your mortgage could become larger than your home's value giving you no room to bail out without coming up with the cash to cover the difference.

"With home price appreciation continuing to decelerate and billions of dollars in adjustable rate mortgages projected to reset in the next few months, this month's increase could be the beginning of an upward shift in the foreclosures market," said James J. Saccacio, chief executive officer of RealtyTrac.

In August, states with both greater statistically significant numbers of homes entering foreclosure and high rates of increases in those numbers, included Colorado, Nevada and Florida.

Colorado foreclosure activity spiked nearly 60 percent in August from the previous month and the state documented the nation's highest state foreclosure rate for the sixth month in a row, with one new foreclosure filing for every 301 households. The state reported 6,079 properties entering some stage of foreclosure during the month, more than twice the number reported in August 2005 and the seventh highest number reported by any state.

With one new foreclosure filing for every 430 households, Nevada posted the nation's second highest state foreclosure rate for the third straight month, due largely to bad bets on housing made in and around Las Vegas. The state reported 2,016 properties entering some stage of foreclosure, a 24 percent increase from the previous month and more than three times the number reported in August 2005.

Once crawling with speculators who are now abandoning the Sunshine State, Florida saw foreclosure activity jump to its highest level of the year so far, with 16,533 properties entering some stage of foreclosure in August -- the most of any state and an increase of more than 50 percent from the previous month. The state's foreclosure rate of one new foreclosure filing for every 442 households ranked as the nation's third highest state foreclosure rate.

Five states, Florida, Texas, California, Ohio and Illinois accounted for 50 percent of the nation's foreclosure activity in August.

What should you do if you face the possibility of a late mortgage payment for the first time and want to avoid foreclosure?

Swallow your pride.

A head-in-the-sand approach will leave what's likely your No. 1 asset exposed to foreclosure. Contact the lender and discuss what you can do. Your goal should be to stop any lender action that could damage your credit and ultimately cost you your home and prevent you from owning another one in the immediate future.

A Freddie Mac/Roper survey found that 75 percent of delinquent borrowers recall being contacted by their mortgage servicer -- the company (the lender or the lender's agent) that collects mortgage payments, but 68 percent of them never call back.

Given most lenders take months before moving to foreclose, you have ample time to seek some kind of work out.


Once you make contact with your lender or servicer in a return call or a call you initiated, stay in touch with that contact until you are current. Document your contacts in writing so you and the lender have a documented record of your efforts.

If possible, consider restructuring or refinancing your loan -- but not to borrow more money. If you are saddled with two mortgages, do the math to determine if consolidating them will help. Likewise consolidate non-mortgage debts. Also consider extending a 15 year mortgage to 30 years or a 30 year mortgage to 40 years or longer. Examine how any restructured debt will play out if your situation worsens or improves. In each case, determine if restructuring is your best move, preferably before you miss a payment and damage your chances of landing a new loan.

Watch out for scams. When you are down on your dollars you are most vulnerable to debt-removal come-ons. You likely didn't get in over your head over night. Don't expect a quick fix.

Get financial counseling. Certified (by state and federal agencies and recognized trade groups) consumer credit counseling services are often free or offered for only a nominal fee. They will teach you your rights and work with you and your creditors, say, to temporarily reduce payments or otherwise work out a payment plan that will keep you housed and your credit relatively intact.

Know your rights. If you are in the military, you have special relief under the Soldiers and Sailors Civil Relief Act to stop the foreclosure and you may be eligible for a reduction in the interest rate. Similar relief is available to those affected by hurricanes, earthquakes and other natural disasters.

Procedural errors in the lender's foreclosure effort or lender errors when you acquired the loan could permit you to file a lawsuit to enjoin or stop the procedure.

If all else fails, bankruptcy is an option that can stop foreclosure, at least temporarily, and give you some leverage to resolve the foreclosure. Today's bankruptcy law also forces you into counseling. That's a good thing.

Selling the property is another end-game option. Consider selling the property out right as quickly as possible or deeding it to the lender in exchange for ending the foreclosure and minimizing the negative comments on your credit report.

Vacation Homes

Will Domestic Travel Slump Impact Vacation Home Rentals?
by Broderick Perkins
Realty Times
September 12, 2006

After three years of upward growth, domestic tourism hit a slump this year and while scattered reports indicate the vacation home rental sector may be faring much better, the sector is rolling out winter marketing strategies early, indicating all is not as well as it could be.

Along with the slower growth in domestic tourism, there is also a greater than ever number of vacation home rentals to fill and that means gravy may be harder to ladle this fall and winter, if only in select areas, experts say.

Also, with the general downturn in housing, owners unable to sell condos in saturated buyers' markets may look to renting as a way to cover their carrying costs until selling is more viable.

"Competition is heating up as millions more second homes and investment properties appear on the vacation rental market. In 2005, according to the National Association of Realtors, second home sales accounted for a whopping 40 percent of all transactions, for a total of 3.34 million second home sales. More telling, 16 percent of those sales (2.32 million) were to investors, most of whom count on rental income to pay their expenses while their properties appreciate. This was on top of 2 million investment home sales in 2004," said Yardley, PA-based Alfred Glossbrenner, who along with his wife, Emily, self-published "How To Make Your Vacation Property Work For You", a guide book and CD-ROM for vacation home landlords.

"That much 'product' on the market impacts property owners in at least two ways. It makes it difficult to raise rental rates. And it makes it more important than ever to do everything you can to stand out from the crowd to get your place rented," Alfred said.

Total domestic travel expenditures by U.S. tourists is expected to rise at a rate of only 4.1 percent this year, compared to nearly twice that much, 7.5 percent last year, according to the Travel Industry Association of America..

TIA reported expenditures for domestic tourism by U.S. travelers dropped by 1.1 percent in 2002, the year after the day of infamy when terrorists turned commercial jetliners into missiles used in three U.S. cities.

In 2003, 2004 and 2005, those same expenditures rose, 3.7 percent, 6.8 percent and 7.5 percent, respectively with 2005 revealing the highest growth rate since 911.

TIA forecasts expenditure growth will dwindle further in 2007 growing by 3.7 percent and in 2008, growing only 2.7 percent.

While fear of traveling abroad and by air in general put a crimp on travel it also helped give rise to the a trend in vacation home accommodations. However, higher in-the-tank fuel costs and related fuel costs are putting a damper on all travel expenditures, TIA said.

In December of 2005, the TIA's Traveler Sentiment Index hit an all time low and by it's summer 2006 forecast the industry said "historically high fuel prices are expected to have a negative impact on summer travel and (fuel prices) are accompanied by broader economic concerns for many Americans."

The industry forecast summer travel would grow this year only by 1 percent over last year and the Glossbrenners say vacation home rentals aren't immune to economic conditions.

"Gas prices and travel costs are likely to cause vacationers to think twice from now on. You've got to give them a compelling reason not only to come to your location but also to rent your particular property. You've got to set it apart from the cookie-cutter look of the competition," said Emily Glossbrenner.

William May, director of the Seattle, WA-based Vacation Rental Owners Association agrees the fundamentals apply -- marketing is always key -- but says vacation homes may be more immune to market conditions than more traditional tourist accommodations.

Under the name of Sunspots, May owns or manages more than a dozen properties from single-family homes and condos to inns and resort properties primarily in the Pacific Northwest, but also Hawaii.

"The inns, resorts and vacation rentals we own and or manage have stronger occupancy than last year, but we always advertise heavily and harangue our repeat visitors with reminders to renew," he said.

"As to the VROA.org we do get reports from members all over. These have to be highly parsed. Looks to me like aggressive marketing and sales focused individuals and managers always do well. Unsophisticated, naive and untrained owners have been pleading for bookings for the three years VROA's been around. I take their reports with a grain of salt. We haven't done a member survey, but it too would be anecdotal," he said.

There's no official, audited, central vacation home rental business registry so it's difficult to tell, beyond anecdotal evidence and in-house surveys, what's really happening to the vacation home rental market.

It is generally accepted, however, that when the general travel industry hit the wall after 911, the vacation home buying sector (as well as the overall second home market) flourished, based on NAR's numbers after 911. Growth was particularly noticeable in investment properties including vacation home rentals.

As travelers left the skies abroad and hit the roads at home, they more and more often sought the security -- perceived or real -- of individual properties and in smaller developments. Resorts, hotels and other areas where tourists traditionally congregated were deemed more likely targets for terrorists.

As domestic travel growth has dwindled in recent years, it appears growth in demand for vacation home rentals has continued, according to one source, HomeAway.com, a network of vacation rental listing websites.

"The research shows HomeAway network owners did not see a decrease in occupancy rates since last year, even though vacation rentals inventories increased across the industry," said Eileen Buesing, public relations manager at HomeAway.com.

In September, HomeAway.com reported a 25 percent growth in year-over-year growth in traffic on the online network and a 30.3 percent increase in year-over-year growth in inquiries per property, based on an owners survey.

"The owners surveyed have not experienced any decrease in occupancy rates in year-over-year," Buesing said.

However, HomeAway.com in September also released a statement to help vacation rental owners in off-season areas boost rental income, indicating owners could benefit from market conditions squeezing the rest of the market.

"Given the increasing cost of travel and the explosion of the online vacation rental industry second home owners have more ways than ever to appeal to winter renters," said Christine Karpinski, HomeAway.com's director of Owner Community.

Published: September 12, 2006

Buyer's Market

Tips For Buyers In Emerging Buyers' Markets
by Broderick Perkins
September 11, 2006

Buyers don't quite yet hold all the cards, but they aren't smirking behind the hand they hold without reason.

Economic conditions are poised to give buyers more homes at lower prices this fall and winter, and as luck would have it, it's that time in the annual buying and selling cycle when more motivated sellers are more open to negotiations.

Housing's current plight and its role as an economic cornerstone was evident the week ending September 8, when stocks fell for at least two consecutive days after Beazer Homes USA, Hovnanian Enterprises and KB Home warned of growing cancellations and spikes in the supply.

That same week, a mortgage rate breather with six consecutive weeks of rate declines appeared over as Bankrate.Com first and then Fannie Mae reported rates were up albeit slightly.

But you really needn't look any further for what's ahead than the recent flurry of forecasts from the usually conservative National Association of Realtors.


NAR's latest existing home sales report on Aug. 23 said July home sales dropped 4.1 percent from a year ago, as the median price of single-family homes rose only 1.5 percent and the condo median fell 1 percent.

On Sept. 1, the trade group's Pending Home Sales Index, based on pending sales of existing homes was down even more, 16 percent lower than July 2005.

NAR dropped somewhat of a bombshell days later on Sept. 7 in a monthly forecast revising down earlier predictions on home sales, due to rising inventories and high home prices. Existing-home sales are now forecast to fall 7.6 percent by year's end, still the third best year after the last boom years 2004 and 2005. New-home sales should to drop further, 16.1 percent and make 2006 the fourth highest on record. NAR projected housing starts to fall 9.6 percent this year.
"A year ago we had record home sales and tight supply with buyers bidding over the asking price. This year sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory," said David Lereah, NAR’s chief economist.

"This is a normal pattern during a market correction ...," he added.

For buyers "normal" means they don't hold all the cards, but the deck is stacked in their favor.

Here's how to get a winning hand without bluffing.


Learn the game. Obtaining general knowledge about the home-buying process and the real estate market is a relatively easy task, but buyers who feel a competitive edge tend to leap before they look. A glut of information available on the Internet, from free real estate industry-sponsored seminars and workshops and through a vast library of real estate guide books can give you an edge.

Check the table. Real estate markets are local, at that means so is a buyers' market. It can be designated by a small community, larger region or greater geographic area. A buyers' market is typically spotty occurring in some neighborhoods and not others or first in one area and then spreading to others. In any event, a buyers' market tends to include high inventories, slow appreciation, flat or falling prices and more sellers than buyers. The area might also suffer from general economic distress. Part of your homework should include learning the boundaries of your buyers' market. The larger the area, the greater your bargaining power.

Don't deal from the bottom of the deck. In a buyers' market, buyers who don't educate themselves about prices and markets tend to low-ball sellers and ask for too many concessions. Even in a buyers' market, that will only alienate the seller, especially those less motivated with top-value homes. The seller will simply look elsewhere for a more reasonable buyer.

Don't give away your hand. Paying sellers' market prices in a buyers' market is a common mistake buyers make, especially at the onset of a buyers' market. The mistake could leave you with a home that immediately loses value. Home buyers should make the same price checks a seller makes to price it right -- get comparables, track sale prices in your shopping area, use the local newspaper, online listing and for sale sites and other sources, to keep tabs on asking prices. Also visit open houses. Use a real estate agent schooled in the history of market trends and statistics.

Play smart. Buy the least expensive house on the best block. Buy into the least expensive neighborhood in the best community. Buy into the least expensive city in the best region. The cheapest home in a neighborhood, community or region in transition will give you the greatest return on your investment, especially when the market rebounds.

Play with a full deck. Don't let a false sense of power overcome you. Even motivated sellers aren't going to wait around for your money to show up. Get your credit report checked an in order. Get your loan preapproved. Lock in your mortgage rate. Don't shop for a home without them.

Play for keeps. Buy because you need a home, not because it's a buyers' market. Speculators and short-term investors are bailing out for good reason. It's also a keepers' market.

Play another game. Renting now and waiting out the market is a gambit, but so is buying a home right now if you don't think you can stay put long enough to weather the change. Renting could pay off, over time, in a buyers' market that hasn't bottomed.

Published: September 11, 2006

Tips and Tricks

101 pretty good ideas from Home & Garden Television

Home & Garden Television
11-SEP-06
A continuing compendium of tips and tricks from Home & Garden Television: Selling in a cooling market:

_ In a cooling real estate market, there are many tricks-of-the-trade that will make your home more attractive to buyers. You can immediately impress buyers with a beautiful entrance. Trim bushes, plant seasonal blooming flowers and put a fresh coat of paint on the front door and shutters.

_ Inside the home, continue wowing buyers with an elegant and well-lit entry. If you don't have a designated foyer, create one _ a console table or demilune chest of drawers, a pair of small lamps and a hung mirror or artwork will create a welcoming vignette.

_ A bright, well-lit home is cheerful and seems larger. Consider adding recessed canisters or strategically placed sconces to your home's existing lighting. Also, replace any dated light fixtures with newer decorative ones.

_ Realtors agree that most buyers are hunting for hardwood floors. Replacing carpets with a synthetic wood-laminate floor, like Pergo, is a good option for those who can't afford hardwood. However, a laminate floor won't fool everyone _ it has a hollow thud when you walk on it and it doesn't have the same warm, high-end look as genuine hardwoods.


(For thousands of other ideas visit www.hgtv.com. Distributed by Scripps Howard News Service.)

Housing Decline......

The Economy | Housing decline: How 'temporary'?

By Andrew Cassel
Inquirer Columnist
Posted on Fri, Sep. 08, 2006

You know the boom is over when even the brokers start predicting lower prices. That was true of the stock-market bubble in 2001, and it's true now, as the air comes out of housing.

Yesterday, the National Association of Realtors issued its sales forecast for the rest of this year, saying an "inventory and price imbalance" will likely cause home prices to fall below the levels of a year ago.

Of course, the drop will be only temporary, the brokers' group says, just until "the market works through a buildup in housing inventory."

Anyone who didn't buy a house last year in hopes of "flipping" it for a quick profit should be fine, they assure us. And perhaps they're right.

But as long as "temporary" lasts, we could be in for a bumpy ride.

Other forecasters are less sanguine than the Realtors. Global Insight, the economics firm with offices in Eddystone, found prices falling even in parts of the country where housing has been relatively tame.

In Michigan, Ohio and Indiana - some of the flattest real estate markets in the country - "modest gains have given way to losses as mortgage rates rise and economic conditions soften," the Global Insight team reported.

Closer to home, they found house prices in the Atlantic City area rose only 2.6 percent during the first six months of 2006. A year earlier, the same market saw prices rise nearly 8 percent.

When a gain isn't a gain

But isn't a 2.6 percent increase still an increase? Not necessarily. Houses don't behave like stocks; when the market cools, publicly reported prices are the last thing to change.

First, sales volume slows down. Then sellers start offering "incentives" - discounted add-ons, flexible payment terms or subsidized mortgage deals. The real price can be falling for months before it shows up in anyone's statistics.

That means it could be a while before we know the size of this "correction." And the extent of the fallout - political as well as economic - is anyone's guess.

Some of it may already be starting. In Philadelphia, for example, some developers are shelving or bailing out of projects for fear that the market is becoming saturated with upscale condos and townhouses.

And builders are lashing out on the political front as well. This week, a group of them issued an 82-page tome in defense of the city's 10-year tax abatement for residential construction, which some city politicos want to cut back or abolish.

The builders (or rather their consultants, local firm Econsult) say the tax break has been worth about $4 billion to the city's chronically bedraggled economy, stimulating thousands of jobs and boosting investment and property values all over town.

It's an arguable claim, though you'd need a tweezer to tease out the effect of the tax break from other trends that have boosted urban housing the last few years.

Home builders clean up

But the abatements have brought one undeniable benefit: bigger profits for home builders in the city.

This is not a secret to anyone in the real estate business: Taxes and other ownership costs are "capitalized" - rolled into the sales price of a house. Buyers paid more for properties with tax abatements than they would have paid without them.

How much more? That's the really interesting part. The authors of the builders' report estimate that each year without real estate taxes adds 2.5 percent to the price of a home or condo. A home with a 10-year tax abatement has been selling for roughly 25 percent more than a comparable home without one.

So have builders simply been getting the money that homeowners would otherwise have paid the city in taxes? Yes - and that's not all.

The consultants calculate the real cost of Philadelphia real estate taxes at about 15 percent of a property's sales price. Thus buyers - for reasons the consultants say they cannot identify - have apparently been paying builders $25 in order to get $15 worth of tax relief.

Alan Greenspan once referred to that kind of behavior as "irrational exuberance." The question now is, what happens when it stops?