Rental Madness in America

The United State rental market is in full swing and the opportunities today are headed upwards.  Real Estate cycles favor certain classes of properties depending upon the state of the economy as well as demand.  During the housing boom of 2007, home ownership was very popular, of course buying at the peak would have spelled financial disaster as home prices have now plummeted from that all time high point.  According to the Federal Reserve 60% of all homes are currently underwater.

With so many people losing their homes, high divorce rates, high unemployment and lack of lending from banks the consumer is very fearful of home ownership right now.  An uncertain stock market that is artificially high complicates most consumers’ emotions as well.  The result is a growing demand for rental properties.  If you read my previous article rental properties are becoming popular with banks as well. Bank of America recently introduced a pilot project of 1000 homes in the Phoenix area to perform a deed in liu of foreclosure with lease back for select customers.  The rental market is good for both nervous consumers and also for property owners.  The rental market allows owners to cashflow properties in a buy and holds position and enables them to be able to perform a long term hold plan that will allow them to sell their properties for more when economies recover.  Banks are encouraged to hold property so that they can manipulate housing demand and sell these same houses for more latter when they can also increase lending rates.  Banks also need to manage their dead weight loss as well, so dumping properties on investors for low prices only hurts their perceived equity and increases their loss.  Therefore a long term buy and hold position for banks is good for banks and selling properties through REO or pre foreclosure is not a favorable transaction for banks.  Don’t expect a lot of pricing concessions from banks in the future.

Most investors understand how to buy a property and sell it for more, that might be challenging in this economy.  But if you can cash flow a property and wait for more favorable lending then you are getting paid today- cash on cash and also benefit tomorrow- return on investment when you sell.  Most people are speculators and typically invest only in their own local neighborhoods.   Recently National Association of Realtors (NAR) reported that rental property sales have increased 65% (1.23Million units) for 2011, while owner occupied sales fell 15% over the same period.  According to NAR 41% of these buyers purchased more than 1 property and half of them were distressed.  The average house price was quite remarkable at $100,000 per property and planned to hold the property for at least 5 years.  Most experienced cash flow investors never pay more than $100k/door, so many of these buyers are probably new to real estate buying.  Rents need to be high enough to make payments and also provide cash flow to the buyer.  Long term buy and hold is in fashion right now and is expected to increase, the Federal Reserve has stated that 2million houses are currently at REO status.  This number is set to double thru end of 2013.  So it’s very safe to say that rental properties are the highest demand asset class in real estate right now.

More evidence to increased demand is in the mature markets for apartment rentals.  Mature market, Class A levels on both coasts are nearing all time high levels in occupancy.  Occupancy in this class is up to 95.1% its highest mark since 2001, according to Reuters.  In addition rental rates rose 0.5% from 4q11 to 1q12, and an increase of 0.9% from month to month which is largest increase in rental since 2008.  All of this growth has occurred in high demand areas, as B and C levels are increasing in occupancy but not in rental rates.  San Francisco saw the largest year over year increase of 5.9%, a high demand mature rental market.  Commercial office leasing was also on the rise in high demand markets closing in on 94% occupancy.  High demand A markets always start real estate trends and as the cycle progresses lower level classes in B/C/D markets do follow.  Southern California is a mature A level market as well, but just not as pricey as Northern California and rental occupancy rates are expected to rise by 1.5% to 96.4% and rates to increase 4.8% per year.  Nationally occupancy is expected to increase by 1% and rentals rates to increase by 4 to 5% in all markets.

The stock market is poised to fall again; the DOW is currently at 13,000 points.  Most people expect markets to rise on speculation and they should fall when the larger numbers of foreclosures hit the market through 2012 and 2013.  Stock markets are manipulated to rise and fall so that traders can benefit, not so that the average investor can profit.  Rental properties can increase your monthly cash flow and then provide you capital appreciation when markets rise.

Short Sale Anti-Deficiency Law’s

 

Mortgage Insurance Tax Deductablity has been Extended!

Great news for the New Year! The mortgage insurance tax-deductability law has been extended through 2011.*

* Eligible borrowers with adjusted gross incomes up to $100,000 may be able to deduct
100% of the MI premiums paid in 2011.
* Deductions are phased out in 10% increments for borrowers with adjusted gross incomes
between $100,000 and $109,000.

New Regulations regarding short sales w/Wells Fargo

November 28th, 2010 in CDPE by cdpe

All short sales with Wells Fargo or Wachovia should be aware of some new regulations.

With much speculation on this subject in recent weeks, DSNews reported new rules regarding Wells Fargo short sales when foreclosure is within 30 days. The bank’s new policy will allow for only one foreclosure postponement given the following criteria:

* Wells Fargo has an approved short sale sales contract in hand (if necessary, approvals from junior lien holders and mortgage insurers as well);
* buyer has proof of funds or is pre approved for financing; and
* the short sale can close within 30 days of the scheduled foreclosure sale.

Beyond these restrictions, Wells Fargo did note that investors may vary in what they allow, and some states require the courts to approve any delay.

If you find yourself against the clock with a Wells Fargo short sale, there is still hope. The bank expressed its willingness to address situations outside these qualifications on a case-by-case basis.

FHA Condominium Project Approvals Expiration Dates Extended:

FHA announces extension of condominium project approvals with an expiration date of December 7, 2010. Provided below are the extension dates based on five-year time frames with the exception of those condominium projects with original approval dates from 1972 -1985.

Initial Project Approval Dates Current Expiration  – Date New Expiration Date

1972 – 1980    December 7, 2010  –  December 31, 2010

1981 – 1985 December 7, 2010 – December 31, 2010

1986 – 1990 December 7, 2010 – May 31, 2011

1991 – 1995 December 7, 2010  – July 31, 2011

1996 – 2000 December 7, 2010  – August 31, 2011

2001 – 2005 December 7, 2010 –  September 30, 2011

2006 – 2008 (Sept) December 7, 2010  –  March 31, 2011

The extensions were granted to reduce the impact of processing and reviewing the number of project approvals expiring at the same time while recognizing current housing market conditions. Lenders and/or other interested parties are encouraged to begin the re-approval or re-certification process as early as possible as it is not anticipated that any further extensions of project approvals will be issued.

The Condominium look-up page and the FHA Connection databases were updated on December 7, 2010 and now reflect the extended expiration dates. The links to the sites are:

Condominium look-up page: https://entp.hud.gov/idapp/html/condlook.cfm

FHA Connection: https://entp.hud.gov/clas/index.cfm

FANNIE MAE HOMEPATH Loans

Fannie Mae Home Path is a great opportunity. No appraisal required… your purchase price is accepted as the appraised value! Check out their web site for more details http://www.homepath.com/

The offer is up to 3.5% toward closing costs and/or new whirlpool appliances.

The interest rate is a little higher than current rates BUT

NO Monthly Mortgage Insurance or Upfront Mortgage Insurance Premium

NO Appraisal

CONDOS- 97% max LTV No condo approval necessary!

3% minimum down payment for SFR’s, PUDs and Condos

** Blended ratios are comparable to FHA

Important Housing Market Data & Trends

New Fannie Mae Loan Limits for 2011 – FYI

Fannie Mae has defined their new loan limits for 2011.

See limits effective after September 30th…

Important dates for high cost areas:

For mortgage loans originated on or before September 30, 2011, loan limits remain unchanged from the 2010 high-cost area loan limits. The maximum limit is $729,750 for a 1-unit property in the continental United States, established under the recently-enacted Congressional continuing resolution (Public Law Number 111-242), and referred to by Fannie Mae as “temporary”.

For mortgage loans originated after September 30, 2011, revised limits will apply. The maximum limit is $625,500 for a 1-unit property in the continental United States, established under the Housing and Economic Recovery Act, and referred to by Fannie Mae as “permanent.”

Do I Refinance now or later?

Refinancing now could be better than waiting for mortgage rates to drop further Mortgage rates on 30-year, fixed rate loans are hovering near the lowest level on record since 1951. While some home buyers are putting their home purchases on hold hoping rates will go even lower, many industry experts are advising homeowners with rates in the upper 4 percent range to refinance.

KEEP THIS IN MIND

• Homeowners with rates in the upper four percent range are likely to benefit from refinancing, according to Peter Ogilvie, president of First Residential Mortgage Corp. in Santa Cruz, Calif. He says refinancing to a lower rate often produces monthly savings, as long as the borrower can qualify under today’s industry credit guidelines and loan-to-value underwriting standards.

• Some homeowners also may be good candidates for no-cost refinancing, where the title, escrow, and lender closing charges either are added to the mortgage principal balance or paid for over time with a slightly higher rate. The upsides to this option are reduced monthly payments, improved cash flow, and no outset of dollars at settlement.

• Borrowers who want to become debt-free faster and can afford it, ought to consider refinancing out of a 30-year term loan into a 15-year term. Fifteen-year mortgages carry lower rates than 30-year loans, but their faster amortization schedules require higher monthly payments.

• When considering whether refinancing is the best option, consumers are advised to take into account all of the fees associated with the refinance and decide if the money saved is worth the cost of the refinance.

The Time to Buy is NOW!

Let’s look at everything that is going on right now .. this is the best time to buy homes (or refinance) due to the fact that rates are the lowest in history and home prices are still very low .. it’s the Perfect Storm… people should not be waiting to much longer…rates will go up even if the home prices go down a little, with a higher interest rate the monthly payment stands to be higher….