Monday, November 10, 2014

Appreciation Rates Slow Across the US

Multiple sources report slower appreciation rates in the U.S. overall, year-over-year. The amounts vary from an average of a mere 2.6% all the way to 6%.

It’s hard to attribute that much importance to such general overall numbers. However, the U.S. is not one real estate market but a few HUNDRED local sub-markets. The state of Florida continues its march upwards in the aftermath of the recession and the price improvement that followed. Due to the much slower judicial foreclosure process in and due to the strain on the state's court system, there are still numerous foreclosures that started as far back as 2008 and are not resolved. This creates a steady “diet” of freshly foreclosed homes, adding to the supply equation and mitigating super-fast rises like we have seen in Arizona and Nevada.

The FL numbers should be superior to the average U.S. numbers reported.  In addition, the stable markets are becoming more popular. Texas is becoming a sellers’ market and Oklahoma City is attractive due to its stability, low unemployment rate (reportedly 3.8%), VERY low property taxes and the newly-found reserves of oil & gas; reportedly 3.5 times that of the reserves in North Dakota.

We will discuss this, as well as the ever-changing lending landscape (for the better that is), 1031 exchanges and year-end tax strategies at our upcoming 1-Day Expo on Saturday, December 6th from 9 to 5 p.m. near the San Francisco Airport (click here for details).

Mention this blog and you can attend free with up to two free guests (just email us at info@icgre.com). As always, there’s lots of learning, networking, extensive Q&A’s and meeting the market teams. This time, Dallas will be present in the new markets. Looking forward to seeing you there and Happy Holidays.





Monday, October 27, 2014

Lending About to Get Loosened


The WSJ reports  (in an article on Saturday 10/18 by Joe Light), that Fannie Mae, Freddie Mac and mortgage lenders are in discussions to ease lending standards; including loans with 3% down to homeowners and allowing people with weak credit access to home loans.

Apparently an agreement is in sight to enact these measures.

Even if none of this trickles down to investors (which I doubt), this is great news. As more people qualify for loans, greater demand for homes is likely to help push values up in many markets. It will also be easier to sell investment homes due to the larger pool of potential homeowner buyers.

I suspect that, as usual, the more lax lending standards will reach investors in one form or another; making investors able to increase their portfolio at the current incredibly low rates (from a historical perspective). We are already seeing a local lender in Oklahoma City lending to foreigners at good investor rates (albeit at 50% down), as well as to investor purchases for investors owning between 10-15 financed properties (also with 50% down. In fact the loan is identical to the foreign investors’ loan). This lender has already agreed to lend in Atlanta and may soon expand to other states as well.


This is positive news for investors, no matter how you slice it.

Monday, September 29, 2014

What Property Managers Do & Why You Should Let The Pros Manage It

A full-service property management company has four coordinating functions: people (tenant screening); financial (rent collection and disbursement, accounting services); construction (maintenance and repair); and legal (lease agreements, eviction proceedings). They are responsible for renting and managing your property in all its aspects, and will offer these services:

-Advertising and marketing
-Property showing
-Tenant screening, including credit checks and background checks.
-Lease negotiation
-Rent collection
-Repair coordination and oversight
-Property inspection
-Monthly and annual accounting
-Lease renewal
-Tenant negotiation
-Eviction services

After you sign on with a property management company, they determine the monthly rental rate based on comparable rentals in the surrounding area. The property manager then advertises the rental, using all the means at their disposal, including newspaper advertising, signage, Web based advertising, and multiple listing services.

The property management company will show the property, collect tenant applications, conduct tenant interviews and credit checks, and review the rental history of potential tenants. They will offer recommendations on the best tenant for your property. After the lease agreement is signed between you and the tenant, the property management company will make sure that your rental property is in move-in condition.

Each month the property management company will collect rent from your tenant. The check will be deposited in a large trust account in which you, the property owner, have a separate account. You are paid by the property management company out of this trust account.

The property management company will keep you apprised of any necessary repairs and will coordinate the repairs by contacting tenants to arrange times for vendors or repairmen to come by. Often, property managers work with a select group of contractors with whom they’ve negotiated discount pricing.

The property manager understands the state and local landlord-tenant laws. This is extremely important if any problems arise with your tenant. A good property manager can help you stay out of small claims court and knows how to conduct a tenant eviction so that it’s effective yet abides by state and local laws.

An important part of property management occurs when there’s a tenant turnover. A difficult aspect of rental management is distinguishing normal wear and tear on a property from excess wear. The property manager knows how to tell the difference and how to determine the correct amount of the deposit refund. They can help you avoid any disputes over this issue, which is often a troublesome one for property owners.


For more information and to find out important questions to ask potential property managers; reach out to me directly at gorel@icgre.com or turn to my book, Remote Controlled Real Estate Riches: The Busy Person’s Guide to Real Estate Investing available on amazon.com 

Friday, September 12, 2014

Construction Loans Are Gaining Strength

  




In a Wall Street Journal article from a couple of weeks ago by Kris Hudson, it is indicated that construction loans posted the largest gain in the second quarter of 2014 since its recovery began about a year ago. According to Hudson, outstanding construction loans for both residential and commercial projects increased to $223.2 billion in the 2nd quarter, up 4% from the first.

The overall lending environment, not only for construction loans but also for individual investor loans and even foreign investor loans, is getting more open and the willingness on the part of banks to lend is increasing.

As for the construction loans, what it means for us as individual Single Family Home investors is that our new-build markets are expanding and will continue to do so.

We are already buying brand-new builder-built homes in the Oklahoma City metro area. Local lenders are extending loans to FOREIGN buyers (!) as well as to American investors with up to 15 outstanding home loans (5 more than the FNMA limit).

Not only will we discuss this at our 1-Day real Estate Expo this Saturday (near SFO – details at www.icgre.com/events), but due to the massive changes in the lending landscape, we will have a special session just for a lenders panel to discuss residential, commercial, hard-money and foreigner loans.


Anyone citing this blog post can attend for free with up to two free guests – just email us at info@icgre.com and show up for an amazing day of information, learning and networking.

Housing Starts Up Sharply

In a Wall Street Journal article from August 19th by Josh Mitchell, it is reported that housing starts are sharply up for the year and have seen a strong uptick in July. Housing starts bode well for a general housing recovery. We have already begun to go back to our old buying style of buying new homes from developers in Oklahoma City.
I am relatively sure in the coming months we will be seeing more attractive opportunities in buying brand new product in other markets as well. It took a long time for the builders to be able to put out a competitive product for real estate investors, as they played a serious “second fiddle” to existing homes, which were priced well below what they could offer.
We are pleased to see the trend as it was always our opinion that a prudent and safe real estate investment certainly includes brand-new homes with a builder’s warranty, with a fixed-rate 30-year loan paid off by the tenant and eroded steadily by inflation (as it is not pegged to the cost of living). This mode of real estate investment serves as the foundation of building a solid financial future and achieving long-term life goals of a solid retirement and sending our kids to college.
Builders have the ability to offer the buyers many “goodies” at a cost to them- that is much lower than the retail cost (an example might be a covered patio which costs $6K but only costs the builder $2K to build). This can create an attractive package for the investor.
We will have builders and new properties available at our upcoming 1-Day Real Estate Expo near SFO on Saturday September 13th. I am looking forward to seeing you.
I am enclosing the full WSJ article for convenience:
U.S. Housing Starts Up Sharply in July - Renewed Strength in Housing Market Could Boost Economy
By Josh Mitchell

Updated Aug. 19, 2014 11:03 a.m. ET
.

WASHINGTON—Home construction surged in July, a sign that renewed strength in the housing market could boost the economy in coming months.

Housing starts climbed almost 16% last month to an annual rate of 1.093 million units, the Commerce Department said Tuesday. That marked the highest level of construction since November, driven by a pronounced rise in new apartments.

Home construction rose 22% in the year through July, and a rise in applications for building permits last month suggests further gains this year. That could ease concerns at the Federal Reserve of a weak housing sector weighing on economic growth this year.

"With housing starts up 22% over the last year, the Fed's concern about a 'slow' recovery in the housing market looks misplaced to us," Economist John Ryding of RDQ Economics said in a note to clients. But details within Tuesday's report raised questions about whether the construction gains will be sustained. Last month's rise appeared to be due partly to a rebound in construction in the South after rainy weather caused delays earlier this summer.

Such rebounds are typically temporary. Also, the bulk of the increase was due to surging apartment construction, a volatile category that can mask underlying strength in the market. And it's unclear whether the housing market will be able to maintain momentum if mortgages rates rise, as many economists expect them to as the Federal Reserve moves toward raising its benchmark short-term interest rates from near zero.

Amid the prospect of higher costs and weak income growth, Fannie Mae's economics group downgraded its forecast for home sales and construction on Monday. It now expects construction of 1.43 million single-family units this year and next combined, down from an earlier forecast of 1.61 million units.

A measure of affordability, which takes into account interest rates, home prices and median household income, hit its lowest level in six years in June. That reflects a run-up in home prices.
Interest rates have fallen back to year-ago levels in recent weeks after rising late last year. The average rate on a conventional 30-year mortgage stood at 4.12% last week, down from 4.53% in the first week of the year, according to Freddie Mac.

But overall the report boosted hopes of a stronger housing recovery. In July, applications for building permits, a construction bellwether, climbed 8.1% to a 1.052 million rate. That suggests construction could pick up further in coming months. Sales of previously owned homes have picked up in recent months, buoyed by historically low interest rates, mild weather, and stronger job growth in the U.S. But sales of new homes have moved sideways. The latest pickup in home construction could signal builders are gaining confidence that overall sales will rise as the broader economy gains momentum.

From a year ago, home construction was up 21.7%. The home-construction market has steadily recovered from the depths of the recession but has yet to regain its strength from the levels that preceded the boom years in the 2000s.

At the height of the housing boom in 2005, just over 2 million homes were built. After the crash, housing starts fell to 554,000 in 2009, during the recession. Tuesday's report showed that starts on single-family homes, which reflects the bulk of the market, climbed 8.3% in July from June.
Construction of multifamily units—mostly condominiums and apartments--rose 33% to a pace of 423,000 units, the highest level since January 2006. That category is more volatile. Other recent signs point to a strengthening housing sector.

A measure of home builder optimism rose two points to a reading of 55 this month, the National Association of Home Builders said Monday. Existing-home sales rose in June to the highest level since October, the National Association of Realtors said last month. The trade group is expected to release July's data Thursday.



Write to Josh Mitchell at joshua.mitchell@wsj.com