With the real estate market doing horribly, and the deals of today are the bonehead moves of tommorrow, how do you know if a home is a good buy as a rental?
The logic is simple -- find out the going rental rate in your area per year, less the monthly mortgage costs, less property taxes, expenses, and management. If you are still positive, you are in pretty good shape.
We are talking about SUSTAINABILITY. In order for a real estate purchase to make sense in a falling economy and a falling real estate market, it needs to be on the basis that you will make money off it like any other property. Stick to this premise, and you will quickly see what the purchase price must be in an area for it to make sense to buy and rent.
Investing in mobile home parks was a very popular idea for the last few years, when cap rates were low, and commercial real estate was taking part in the housing boom. As a , I found myself more peripheral to the craze, but still had some clients who really wanted to invest. Some have done ok for themselves, others have not.
In general, I reccommend against it for several reasons:
1. Mobile homes are not real estate -- they are personal property. As such, it is difficult to tell just what you are "buying" -- does the park already own units, and if so, how much? Is it just a piece of land with the proper zoning? Sellers are not very forthcoming.
2. Mobile homes and RVs are not the same thing. And many people don't realize that.
3. Mobile home parks create difficult management. High eviction rates, difficult maintenance, and the difficulty in collections mean one big Pain.
4. HEAVY COMPETITION. There are just some many investors currently scouring the market, that it is incredibly rare to find mobile parks on the market, and far fewer that are good deals.
There just aren't enough mobile home parks to support large investor base. Better off waiting until the market cools down, and then try to find a good deal.
Even a small amount ($25, $50, $100) added to your mortgage payment each month when applied to the principal can have a significant impact on the total amount of interest you pay as well as how long you pay it.
For example, if you divide your monthly mortgage payment by 12 and add that amount to your monthly payment each month by the end of the year you will have paid the equivalent of an extra mortgage payment for the year—a 13th payment—all invested in principal reduction!
That 13th payment can make a big difference. For example, let’s say you borrowed $200,000 at 6.5 percent interest with a 30 year term. Your monthly payment would be a shade over $1,264 a month for principal and interest. By adding an extra $100 per month ($1,200 per year) you would pay off your mortgage in just over 23 years, knocking almost seven years off the loan and saving over $73,000 in interest.
Contact your lender to find out how they apply extra payment money from you. Some lenders may apply your extra money that you pay above your monthly payment amount automatically to your principal.
However some may appy it to your escrow account to pay taxes or insurance which is NOT what you want them to do! Make sure you read the fine print, and call (or write) your lender to confirm what they will do, or how you can assure that the extra money goes to reducing your principal balance.
Tip: Sending a separate check and clearly marking the “memo” field with your loan account and the phrase, “Apply to Principal”will help assure proper credit and provide strong documentation of your extra payments. Again, check with your lender.
Tip: Don’t bother with offers from your lender or 3rd party companies that offer to charge you money (often as much as $200-$300) to set up a bi-weekly payment program—you can accomplish the same thing yourself without their help—for free.
IMPORTANT NOTE: Although this is a great strategy to accomplish the twin goals of saving money and increasing equity in the capital asset that is your home, this may not be the best use of your financial resources.
Interest rates for home mortgages tend to be lower than most other consumer loans and your financial profile may suggest a better use for this money—like paying off higher interest consumer loans first.
Anytime you pre-pay extra money on any installment loan it has the same effect as investing your money at that interest rate. So if you had an extra $100 should you pre-pay it on a home loan at 6.5% or a consumer loan at 10%, for example? And don’t forget that mortgage interest is usually fully tax deductable, whereas other consumer interest is not.
Therefore, we recommend consulting a qualified financial advisor for a proper evaluation of your total financial picture before proceeding with this strategy.
(This money saving blog story was reproduced from the "Buyershome Journal" blog - April 12, 2007)
There has been a lot of negative press recently since the Government of Canada eliminated a zero down payment 40 year mortgage. But I like to have a positive outlook on life and here are some positive spins on some negative news:
1. Mortgage Rates are still at an all time low. There was a time in the early 80's when mortgage rates were 18% and higher. At that rate how could you ever pay down your principle. Now the 5 year discounted rate is 5.47%. That is a great deal!
2. Sales of homes are down from last year. Well, we had a great 13 year run with the market beating itself over and over again. Economies are cyclical. A rise is usually followed by a correction or fall. These cycle usually happen every 5 or so years. What are complaining about? 13 years is amazing. Yes, housing prices are still rising but unemployment is around 6%. Quite healthy, really.
3. The banks are losing money from investing in the US Mortgage Market. There is a silver lining to this as well. Bank stock prices are on the decline but historically banks have been a very good place to put your money. Now don't take my word for it since I am not an investment adviser, but I would be calling yours and asking him or her to watch the stocks for you and decide a good time to buy.
4. If we are in such trouble in the real estate market, why are there 41,230 housing starts in the GTA this year of which 18,390 were apartments and condos (numbers provided by CMHC). Someone has to be buying these. And with new homes being built often there is a shortage of skilled trades available like drywallers and bricklayers. Looks like an opportunity to me.
5. Gas prices are rising. Now is the time to explore alternative energy sources. It has been a long time since I completed my Grade 8 Science Fair Project entitled "Go Solar!" But once again opportunity knocks. Here is a whole new area for company growth, which in turn will feul the economy and real estate sales.
I think we are on the cusp of some very important changes and as the old song by Johnny Mercer goes "You've got to accentuate the positive
Eliminate the negative
And latch on to the affirmative
Don't mess with Mister In-Between".
No Mister (Or Mrs.) In-Between thinking here. Let's take advantage of the opportunities life is presenting us with!
Once you have decided that you want to be an investor in real estate and you are in it for the long haul, you need to assemble your team of experts.
Depending on how conscientious you were in the past about guarding your credit, this process can take up to one year. You will need to interview the members of your team because you will be working with them continuously.
Here are the steps that you have to do.
1. Visit your local banker and speak with the person who deals with all loans. If the bank is small enough, this person will handle all loan inquiries in that particular branch.
2. Assemble your papers. This means bank statements, pay stubs, cds, titles to properties you already own.
3. Find the addresses of the three major credit bureaus. Ask for your most recent credit report (you may or may not have to pay for this service).
4. Begin interviewing mortgage brokers. You do not need to send in paperwork to all the mortgage brokers that you know, as every time they access your credit report there is a corresponding decrease in your credit score.
5. Work with a real estate agent who has done the same thing you are going to do. Someone who sold you your million dollar home may or may not have had experience in investing, very simply because they have different focus and have defined niches.
6. Your real estate agent should have a list of everyone that can help you manage and or keep up your investment. This list will include appraisers, inspectors, plumbers, electricians, cleaning ladies, carpenters, painters, landscape or yard maintenance person. If you decide to have someone manage the property for you, interview not 3 but 5. This is a crucial choice. It can save you a lot of frustration, not to mention lost income.
7. You will need an attorney that will do the legal work for you and it has to be a real estate attorney.
8. Once you have assembled your team, set up a meeting with your finance team (banker/mortgage broker/accountant) and tell them what you intend to do.
9. Set up a meeting with your real estate agent, the one who is going to find you the properties. Be specific in your criteria when defining what you want to invest with (is it location? type of construction? undeveloped land? a new construction? is it a single family home? is it a multifamily home?). Those are the questions that only you can answer.
10. Know the area you want to invest in like the palm of your hand. Where are the grocery stores? Where is the nearest bus stop? Is there a laundromat close by? How are the buildings in that area? Do the owners maintain them? The most important criteria: Will you live there?
You have assembled a team of experts and your task is almost done. That is just the preparation for your buying process. You have to be doing all of this in addition to your family/social obligations and your career. Give yourself some time.
We had a lot of news out today, all of which was bad. The Retail Sales report came out today at a 0.1% rise over last month. This is considerably lower than the projected 0.4% increase, and the lowest increase since the February Retail Sales Report.
The Producer Price Index (which measures wholesale inflation) came in at 1.8% on a seasonally adjusted basis in June. This is not good news for inflation, and as the biggest gain since November 2007, it will continue to chip away at investor confidence in the mortgage bond sector.
FED Chairman Ben Bernanke will be delivering his semi-annual monetary outlook to the Senate Banking Committee today. The expectations for his prepared speach are already creating concerns with investors and causing a sell off in stocks based on the assumption that continued problems with growth and unemployment will not ease in the near future.
All of this leads to a less than stellar environment in mortgage bonds. Normally, a stock sell off is good news for the bond market and mortgage rates in general. But with continued uncertainty about inflation, it is having little or no affect on bonds. My suggestion would be to lock your rate at current levels to protect against future loss on any active mortgage loan you have working.
It has been reported that approximately 200 people were waiting in line at Pasadena based IndyMac bank this morning to withdraw any and all money they could. For all the people who had more than the insured $100,000 at IndyMac, the FDIC has said they will cover up to half of the rest. That comes to a lot of money, so we’ll have to wait and see if they follow through with that promise. Meanwhile, The Federal Reserve unanimously approved new mortgage lending rules Monday in a crackdown on shady practices - particularly those involving subprime loans made to with weak credit.
This is the bill I wrote about last week. Both consumers and mortgage lenders were displeased with the original bill, which has since been tweaked in order to make as many people happy as possible. To that end, the agency made several substantial revisions to the proposed regulations it unveiled in December. Many of the changes acknowledged consumer advocates' concerns that the rules still contained too many loopholes that would allow shady mortgage lending practices to continue. But the Fed also made some concessions to industry executives, who feared increasing oversight would lead to less lending.
The new rules will apply to all mortgage lenders, not just those supervised and examined by the Fed. The new rules will go into effect Oct. 1, 2009, but that doesn’t mean the investigation is over. The people who brought us this bill have announced that they will continue to scrutinize all mortgage lending companies, in order to ensure they are following the new rules and aren’t getting around them and further complicating the mess we have in the housing market.
So here are the rules as they stand right now.The new rules governing "higher-priced," or subprime, loans will:
Prohibit creditors from extending credit without regard to a consumer's ability to repay the from income and assets other than the home's value. The mortgage lender will comply by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. Mortgage lenders will also have to verify income and assets that can determine whether or not the borrower is fiscally able to pay their mortgage.
Furthermore, the new bill will ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. Mortgage lenders and creditors will also have to establish escrow account for property taxes and homeowner's insurance. This rule will be phased in during 2010.
One of the changes The Fed made was to the definition of higher-priced loans with regards to mortgages rates that are at least 1.5 percentage points above the average mortgage rate, which is published by ; who by the way is also under the government’s radar for shady mortgage lending practices. No here’s a big one I have personally been affected by; Creditors and mortgage brokers cannot coerce a to misstate a home's value. I have lost thousands of dollars over the past five years do to this practice. For those real estate appraisers unwilling to fudge the numbers, this comes as a happy occasion.
Mortgage lending companies are now to be upfront and completely honest about late fees and hidden fees. It seems they were glossing over this information, which is one of the reasons so many people in the housing market find themselves in foreclosure now. They were led to believe their mortgage would be one fee, only to find out it was more do to those hidden fees. In order to further ensure people getting into the housing market know what they are in for, The Feds have included a rule that in any advertisement a company must include additional information about rates, monthly payments and loan features. The rule also bans seven deceptive practices, such as saying a rate is fixed when it can change. Sadly, that kind of stuff should have already been the standard operating practice. I find it disgusting that the government has to put these rules into writing and make them law.
Most advocates for the housing market and real estate consumer are generally pleasedwith the bill, and feel their months and months of keeping up with the progress of it has paid off. More than 4,500 comments were filed since the agency announced its plan in late December, and after reviewing the final rules, advocates said they felt the changes did provide additional protections for the consumers. In particular, it's important that the Fed eliminated the requirement that borrowers prove lenders engaged in a "pattern or practice" of originating unaffordable loans since that's very hard to do, said Brenda Muniz, legislative director of Acorn, a housing advocacy group.
As for whether this new bill will help the slumping housing market and bring real estate back to stability, that remains to be seen. There are also people who feel this bill is too little too late. But what about you; do you think this new bill will curtail shady mortgage lending practices. Leave us a comment and tell us how you feel.
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WASHINGTON – July 14, 2008 – Faced with record-high foreclosure rates, the Bush administration has been scrambling to keep people from losing their homes, but many are beyond help, Treasury Secretary Henry Paulson said Tuesday.
Lax lending standards that accompanied the once high-flying housing market allowed people to buy homes they could not afford, Paulson said.
“Many of today’s unusually high number of foreclosures are not preventable,” he said in prepared remarks to a mortgage-lending forum meeting in Arlington, Va. “There is little public policymakers can, or should, do to compensate for untenable financial decisions.”
Paulson said that there were 1.5 million home foreclosures started in 2007. He said some economists estimate there will be about 2.5 million foreclosures started this year.
Since last summer, the Bush administration has been focused on cutting down on the number of what Paulson called preventable foreclosures, where struggling homeowners want to keep their homes and have the financial wherewithal to do so.
The administration has been working with the Hope Now alliance, an industry group trying to coordinate a response to the mortgage crisis, to encourage lenders to work out loan modifications or refinancings for people who can afford the new terms and can keep making payments.
“While there have been bumps in the road and there is still work to do, the industry, through Hope Now, has made an enormous effort and great progress toward meeting these challenges,” Paulson said.
Since last July, the industry has helped 1.7 million homeowners with loan workouts that allowed them to stay in their homes, Paulson said.
Slumping home values are blamed for the bulk of the increasing foreclosures. Troubled borrowers left owing more to the bank than their homes are worth are walking away. Dumping more empty houses on the market adds to the pile of unsold homes, and that drives home prices down further.
Other homeowners were clobbered when initially low mortgage rates reset to much higher levels, ballooning their monthly payments.
Congress is working on legislation that would permit the Federal Housing Administration to provide new, cheaper mortgages to distressed homeowners who otherwise would have difficulty refinancing into more secure government-insured loans. Lenders would have to be willing to take a substantial loss by reducing the amount owed on the loan.
Differences have to be worked out between the Senate package and a similar House-passed proposal, and with the White House, too. The White House has threatened a veto but is working behind the scenes with congressional leaders to find common ground.
Paulson said he was pleased that Fannie Mae and Freddie Mac, major providers of mortgage financing, are raising more capital to bolster their balance sheets.
Shares of Fannie and Freddie tumbled on Monday after a Lehman Brothers report said that an accounting change could force the companies to raise billions of capital.
As part of a broad housing rescue package that includes leeway for the FHA, lawmakers also would revamp oversight of Fannie and Freddie, something the Bush administration has been championing.
Paulson also said Treasury is working with the Federal Reserve and other financial agencies to explore the potential of “covered bonds” as a way of increasing the availability and lowering the costs of mortgage financing.
These bonds provide funding to an issuer, such as a bank, and are backed by mortgages or cash flows from other debt. If the bond issuer goes into bankruptcy, investors who bought the bonds can lay claim to the underlying assets. Such bonds have been widely used in Europe to finance residential and commercial real estate, student loans and credit card debt, he said.
source: ap.org
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