Real Estate is on sale like never before.
You know this already.  Most people won’t take advantage of these prices because they can’t see what’s happening around them through the haze of the negative news media and the scare of some impending global gloom and doom. Be that as it may, the fact remains that you could buy your next home, a move up in your own market, for a more favorable price than at any other time in the last 10 to 15 years in most of the country.

Rates are very favorable.
Rates today are very low, at an average of around 4.25% (15 year) or 4.75% (30 year) as of this writing.  Even if rates hits 7% in the next 24 months, that is still historically very low. The biggest determinant of making money in real estate is NOT the interest rate you get on the mortgage, but it never hurts if you get a low one. The government has made it artificially beneficial for home buyers to make a killing in this market. Artificial, that is, unless you actually lock in one of these low rates for yourself! If you do that, then the benefit becomes very real for you. In the face of potentially rising future rates and home prices, you can set your fixed-loan terms today and hold onto them long into the future.

Renters are plentiful.
I’ve asked more than a dozen clients to take what I call the “Craig’s List Challenge.” Take a picture of your own home and put in on Craig’s List “For Rent.” Choose a payment that is a little more than your mortgage payment(s) and list only your email address as a way of taking requests. Do this only if you are actually considering renting out your home. I bet you have no less than five requests inside of a few days.

The point of this exercise is to show you that you have options other than selling your home. Because of the tightening lending standards today, many good people are just a year or two from getting qualified to buy their own home. They can rent from you while they work on their finances. They might even buy your home from you in the end saving you even more money.

But I’m not the Landlord type.
Now may be just the time to join the growing crowd of landlords who are not the landlord type. I’ve never heard one rental-home owner say, “I always wanted to be a landlord when I grew up.” They generally have other motives.

Let me runs some motivational numbers for you. Let’s say you purchase a nice home for $100,000 at a deep discount from a bank or on a short sale. You finance it using a 15-year fixed-rate mortgage at better than 5%, and with taxes and insurance your payment is just over $1000 per month. Then you rent it to a family with kids who will take very good care of it for $1100 per month. You have to spend $2000 per year for maintenance and miscellaneous expenses, but for the most part this is running at a break-even for you.

15 years from now your rental is paid for and generating $1500 per month in rent (assuming normal inflation).  After taxes, insurance and maintenance, you are netting $12,000 per year.

Using very little of your own money, and taking advantage of ideal market conditions, you’ve created a long-term passive income stream for you and your family.

Now, lets add up all four of the above realities.
An even easier way to buy a rental home is to turn your home into a rental and purchase another home for yourself. This kills two birds with one stone. You were planning on “moving up” by now anyway, and you get to make/keep a great investment (your home) in the mean time.

What are you waiting for?  The timing may be perfect.

Face it, the loan processing business is tougher than it used to be. But it doesn’t have to frustrate clients.  Two thoughts before I begin:

1.  This post is as much for me as it is for all of us (processors, clients, underwriters, etc.).
2.  This is something that I know my team agrees with and strives for every day. I am writing this as a result of my team making me believe that mortgage lending can be fun again. They are truly committed professionals. I am indebted to them. Thanks Kandice, Karen and Kim!!

How to achieve mortgage processing excellence:

We are always striving to simplify and improve how we manage the loan files that we decide to take.  We are committed not only to this, but also to this industry long term. Without this commitment, mortgage processing excellence will never happen.

The process starts with understanding what a well-qualified loan is. The lines have been drawn in new places these past few years, so we are recommitting to this standard in 2010. We endeavor to serve the mortgage lending needs of Michigan residents for decades to come. We readily take good applications and we also help those whose qualifications are marginal to become well qualified. This has been our commitment for over a decade.

The next step is preparing the customer to meet with us. The more data we have ahead of time the more valuable the appointment is for the client.

When we determine that we should take a mortgage application and the client agrees, we start the following process:

Stage I.
We set up the file.
(Application is filled out and our preliminary list of information is requested and gathered, appraisal and title work are ordered, a complete list of remaining items needed is given to the customer, disclosures are sent to the customer for signatures.)

Stage II.
We are waiting for the appraisal.
(During this time we are receiving and reviewing items that were requested from the customer; customers who follow through on the entire list make life easier on them and us. We will pester customers here if we need to. )

Stage III.
The appraisal is received.
(We read the report and determine if it is acceptable for the loan terms; necessary calls are made to the customer, realtors, other interested parties; report is emailed to customer.)

Stage IV.
We finish processing the file.
(Final items are requested from the customer, and corrections and alterations are made to the appraisal, title work, insurance dec pages, as needed. In a perfect world most of this is done by the time the appraisal is received.)

Stage V.
The file is ready to submit for (final) underwriting.
(Upload file securely to underwriter as required; call is made for confirmation of receipt of file by underwriting.)

Stage VI.
The loan file has been submitted for underwriting.
(Here we are waiting for an answer from underwriting – one to three days depending on loan volumes affected by rates and other market conditions. During this time we are preparing for closing documents as we are able.)

Stage VII.
The underwriter’s conditions are received.
(Generally, this is the same day we gather and submit the paperwork or clarification that is required by the underwriter. This can be a bit frustrating as underwriters are under much greater pressure to make their files perfect, but we are generally able to handle them easily, mostly because we took a good file and had a lot of information up front.)

Stage VIII.
We’re clear to fund.
(All conditions are cleared, closing documents are prepared, and closing time/date/location are confirmed. A pre-closing review meeting is set with the customer to go through the closing documents prior to the closing.)

**Important Note**
We want to allow the earlier stages to constantly learn from and be informed by the later stages.  For example, if we are given a “new” condition from underwriters consistently in stage VII, then we want to add that to the analysis and list in stage I. Customer feedback is also evaluated regularly, and changes are made to the appropriate stage as needed.

Processing one loan is a very simple thing to do – the above process can be understood easily and it is easy to follow.  The challenge is to keep track of 40 to 50 details on 40 to 50 files. 50 x 50 = 2500 details! That is a lot to keep track of.

But it is very do-able. In fact, my team is doing it very well right now. Yet we can always get better!

Excellence is the Key

The key to increasing our closing success and customer satisfaction is an excellent process and excellence in the process.

Our daily focus is to quickly move files from one stage to the next all the while keeping the customer well informed of what is happening and what their role is.

Our success will be enhanced as we increase the level of excellence each time a file is touched at every stage.

So my main point today is this:
When we have a task to do we need to focus on that task and do it completely.
Everything we do up front does not have to be done later and saves time.
When we save time we have more time to use for customer communication.

I appreciate my team a great deal. I would not do this business without one and I would not enjoy it as much without THIS one. And I know that you will appreciate them as you work with us.

We ask that you evaluate us often and help us improve because our aim is to give World-Class Customer Service to you and to those to whom you introduce us.

Thank you for your business!

Let’s look at recent proof for this reality.

Home buyers who accepted a deal by April 30th had 60 days to close their deals by June 30th to qualify them for the home-buyer stimulus credit. If deals can be closed in three to four weeks, then why did Congress extend the home-buyer-credit closing date past the 60th day? There are a number of factors that made it necessary…

~More offers on homes were written and accepted the week of April 30th than maybe any time in the history of selling real estate. Homes are moving faster even today than they were last year. Homes are a great deal, more people are buying. Which means the pipeline got full and slow very quickly.

~Then, in June, interest rates moved down one more notch to a level that is lower that at any time in relevant history. Even though home values are lower, this caused more loan applications to be submitted by loan officers for their clients than has recently been seen.  Both purchase loans and re-finance applications accounted for the increase.

~Remember too, that there are fewer lending institutions and conduits today than there were three years ago. So in an overall sense, the pipeline is narrower.

~Lenders are making the approval process more difficult by asking for more documentation.  This holds up the process of obtaining an approval and getting your deal to the closing table.

~Banks are the sellers (or in charge of short sales) in likely half of today’s purchase transactions. These banks contribute to slow closings because they have departments and hoops that need to be jumped through before deals can close.

~The above is not an exhaustive list.  If your deal was held up, leave a comment and tell us why. The stories are varied and weird.

Add it all up and, simply speaking, you have more files and a slower process. What was thought to be enough time to get deals closed, turned out not to be for hundreds of thousands of homebuyers – homebuyers who had their accepted offer completed by April 30.

So, you negotiated your deal on April 30 and paid a price that was likely inflated a little because you were convinced you would get the tax credit. Then for reasons (above) that were beyond your control, you did not close by June 30th.

Politicians would not have been able to live that one down. They voted to extend the closing date. This allowed those who made the purchase assuming they would get the credit to actually get it. The credit itself was not extended it was just given a little more integrity.

Closing in one or two months is most often do-able, but in today’s market, as we saw by the necessity of the extension, it’s just not always enough time.

If a seller has a home listed for $200,000 and you offer $140,000 – you have just low balled the seller’s number. There is nothing wrong with that, you just need to think it through ahead of time.

The seller has a few options, and a mature negotiator has his response to each one.

1.  The seller could accept your offer.

If that happens, the two things that will enter your mind are 1) could I have gotten a better deal? And 2) what might be wrong with this home?

These are legitimate questions, but realize up front that you will want to take this into consideration before you make your offer. Ask yourself: if they accept my offer, will I kick myself for not going lower? There is a price that is too low and will move you to one of the next two options which are more difficult. To deal with the second question ahead of time, you’ll need to have a good home inspection done. You would do this anyway, but make sure you know what the added costs of deferred maintenance might be – costs like a new roof, a furnace, etc.

2.  The seller might counter at $197,000 or something very close to their original price.

If the seller does this you can really do only one of two things: You can counter a few thousand higher than your original, or you can walk away for a while (30 days). If you come up more than they came down, then you essentially tipped your hand about one thing – you will come up. And they’ll keep drawing you up.

3.  The seller could reject your offer.

Similar to the high counter, this kind of response basically says that you need to wait before you can offer again. Give it 30 days and then offer the same thing you did before.  Do this a few times and keep waiting. Again, the obvious risk, especially if the home is a great deal, is that someone else may make a higher offer and take the home off the market.

How bad do you want it?

If you really want the home, then don’t low ball unless the low offer is the most realistic price based on your research. Make a fair offer and acknowledge that you are already getting a great deal. If you can take it or leave it, then you have little to lose if the seller starts playing the counter game with you. You can just walk away.

A good reminder

Also realize that your Buyers Agent has a family and a life too. After your 20^th unrealistic offer, you may find yourself looking for a new agent since you’re not acting like you really want to buy a home.

Lastly

Don’t wait this market out simply because you’re new to it. Go for it. If you make a mistake, apologize for it and move on. If you have to ask a ton of questions, then ask a ton of questions. This market is almost fool proof. You will do much better buying a home today than you would have (or did) three years ago.

When you’ve decided about the area in which you would like to live, set up a meeting with a full-time Realtor, preferably contracting with a Buyer’s Agent, one that you were referred to or already know and trust.

When you’re looking at a particular home, make sure you obtain ALL listed and sold homes in the area surrounding that home. The listings should all be active listings, and the sold homes should be from the last 6 months if there are any. Going back a little further can be helpful to give a little bit of perspective to the price – the farther back in time the sale closed, generally speaking, the higher the sold price will be (as of the date of this writing).

You also need to know what the Assessed Value of the home is as well as the Taxable Value of the home. In Michigan, these figures can be accessed for the past three or four years. Get them all. There’s no iron clad rule of thumb about the current taxable value of the home as it relates to the amount you should offer, but you want to know in general where you stand compared to what the seller may have paid for the home and how long they may have owned it. Go over these details with your Buyers Agent; he or she will explain the values here and what you are looking for.

Lastly, if the home is bank owned, you’ll need to know if the tax rate is inflated for the first year. This has the potential of adding thousands to the closing settlement amount, so it ought to be considered in the offer price and terms.

When you have all of the above information, you can begin to formulate a price. It’s likely that your agent will not be able to “give you a number” based on their code of conduct as Realtors, but they can give you great advice, so do ask lots of questions along the way.

But did you know that I can approve a person whose gross (before taxes and all other withholdings) income is $60,000 per year for a $2500 house payment under the right list of conditions? That’s half the borrower’s income. The before tax income! In this case the person would have approximately $1200 left every month to pay all utilities, car insurance, life insurance, groceries, Christmas presents, etc. Not sure how this make sense, but FHA will do it – and with only 3.5% down.

Here are some helpful benchmarks to consider before trying to buy a home or make a move up into a more expensive home.

Debt

Set a goal to have all of your debt paid off. No car loans, no credit cards. For most people, that would free upwards of $600 or more per month, money that can be used to make home improvements and to take care of home-related things that must be planned for like a new roof or septic repair.

Reserves

You should never get into your home using your last saved dollar. Emergencies happen in life, but buying a home is not an emergency. Even non-emergency-type events happen that cost money. So consider saving up to three months of your current monthly budget over and above what you need for your down payment. A new $300 water heater can be a very calm and non-emotional event – if you have the money to pay for it. When you don’t then something that simple (which is inevitable if you think about it) can be a day or even a week wrecker.

Stable income

We can never be sure that our income will continue exactly as it has, much less that it will increase – just ask state employees and General Motors union workers. Nothing is certain, and that’s a certainty. Yet it makes sense to remember a few things: Don’t commit yourself to a payment based on needing to make overtime or bonuses; And wait until you’ve settled into the job and like it (and they like you) before taking any step like a home purchase.

Put a ring on her finger and get Married already

I would never recommend buying real estate with a friend, or even with someone who is more than a friend. Tie the knot first. I don’t mean to be preachy, but I find more often than not, folks who are not married and buy a home together end up in a difficult spot.  Getting into a home is much easier than getting out of one. Make sure it’s forever before taking this step.

Let’s face it, lenders are good at getting deals approved and closed. They’re motivated because they get paid for it – this is good for you. You want the person working for you to work hard and not give up until the deal you want is closed. But that means you need to be watching your own back. If you walk into a lender’s office and express a desire to own a home or move up to a larger one, don’t expect much from the loan officer except for him to get that done for you, whether or not you are actually ready for it.

By doing some simple number crunching in five key areas, you can avoid getting into a scenario like this…

1. Next year’s taxes. This can be tricky. Make sure you have computed the actual tax rates and estimated correctly what the taxable value is and will likely be next year. Future tax bills on the home you are buying could go up or down based on many variables.

2. Utility bills have more to do with the particular home you own than with you. How many lights come on when you flip the switch, and how much electricity is used when you forget to turn it back off? How well insulated is the home, and how many windows does it have? How old is the furnace? Many of these variables contribute more to the amount of the bills you will pay than you do. Either make a very high estimate going into the deal until you’ve seen the real bills or get some past data on the home from the utility companies. And with past data, be sure you’re comparing apples to apples. Was the previous owner the sole occupant or did he share the space with a wife and eight kids?

3. Water, sewage and trash are different in many different neighborhoods. Be aware ahead of time of the kinds of bills that will be coming to the house.

4. Yard, mulch, mowing, and the outdoor appearance of the home will all look either very nice if you are buying a home from a private party or very bad if you are buying from a bank. Either way these items will generally cost you more than you think in money and time. When I talk with clients a year or two after they’ve purchased a home, they often talk about the outside issues as the ones that caught them off-guard the most.

5. Deferred maintenance items like rebuilding a deck, replacing an old furnace, redoing a roof, new carpet and paint, appliances, electrical and plumbing are all things that need to be understood well ahead of time. As you go into any home you’re considering buying, make three lists:

First, what can I get the seller to fix before closing if anything?  Make sure these are items that you are not concerned about being done correctly – a furnace that you choose for example is a good one for this list where as new kitchen layout is something you want to have more involvement in and would need to wait until after closing.

Second, what will the lender require to be repaired prior to closing?  This one is important because it could mean your loan approval is in jeopardy if items required by the lender cannot be done prior to closing.  A new roof is sometimes a good example here.  The roof is a major repair so sellers are often leery of having it done before the home is sold, yet lenders might require it based on the remaining life of the roof remaining.

Lastly, what will you want to do once you take possession?  Make sure you do a good job with this one in advance.  It’s easy to assume that once you’re in the home you can begin the improvements, but these can get out of control if you don’t have a prioritized list in advance.  Make sure you understand the cost of the remodeling you plan to embark on it so that you don’t end up putting the improvements on a credit card just to finish them.

So count the cost in each of these five areas before you dive in. You’ll have a better idea of what’s ahead, and be able to write a more informed offer on the home up front. You’ll also be more likely to hang onto that home once it’s yours.

The word qualify is my word. As the lender I need to make sure that I can “qualify” the borrower for the loan and ultimately the home that she wants.

The word afford is the customer’s word and is often ignored in the lending office. This is the process whereby the potential borrower determines what she is able to pay each month based on her income and other bills and lifestyle habits.

Let me give you an example of the conflict:

A couple recently applied for a mortgage and said they could afford a payment of $1750 per month. She was employed full time making around $39,000 per year her husband was between jobs. He had been off for 6 months and had three prior job changes in the past two years including one complete career change 15 months ago. His salary in his most recent position was around $60,000. The job he is looking at currently will pay a smaller base salary and a commission based on his production.

Because they have no other debt and a nice emergency fund, they feel comfortable paying up to $1750 per month for a house payment. They feel that her income is stable and that his income will be at least as much as hers and likely over $50,000. I like folks who are confident in their ability to earn money. That however, does not get them approved.

Right now I can only qualify them for a payment around $1200 – this is calculated on her base salary alone. After he has been employed for at least 30 full days (and because of his recent 6 month hiatus, maybe a little longer), I will be able to add his base salary to the mix increasing their qualifying payment to something higher than $1500 and closer to their high-end “afford” number.

I recently read an article on-line that commented on a recent survey of loan officers who were willing to make general comments about their customer’s mortgage decisions. The survey highlight was that most (7 out of 10) loan officers nationwide were of the opinion that their customers accepted mortgage payments in excess of what they could afford.

Though that number seems high to me, I did recently have one of those cases; it’s not something that I get a lot. The client learned about me through this website, and we began discussing his needs and financial situation. He ended up in a deal that would not only require most of the cash he had saved, but the house would still need a lot of work after closing.

As soon as I see a transaction hit a level where I’m getting nervous, I call my customer and tell them. They generally appreciate it, and when I brought it up in this case, I was reminded that he would be getting married this summer and that his fiancé had some cash to contribute to the repairs. We went through the likely reality of the next year together—the wedding, honeymoon, home repairs, car purchase, and anything else we could think of—and found out that it all worked. It was closer to the line than the customer thought but better than I had suspected. We both appreciated the conversation and moved forward.

The point here is that this entire last conversation happened AFTER the lender had already given the all-clear on the mortgage approval.

So, a lender saying yes does not equal your being able to afford the loan. Your loan officer should help you see all the angles of the situation, but if he doesn’t, take a few minutes and add it up yourself. My next four posts over the next couple of weeks will help.

Regardless of the interest rate the process for approval is a simple one requiring only the following data for a full approval:

1.  HUD from the day you purchased the home or of your last mortgage closing (this is the settlement statement with all the closing numbers on it)

2.  Signed note from current loan – this will be part of that closing package as well.

3.  Two months of bank statements

4.  Copies of each of your Drivers Licenses

5.  Form filled out (quick application) we will email this to you.

After receiving this we will send you the formal application packet to sign and send back to us.

We get the loan approved and then set a closing date for near the end of the month.

Working out numbers and details at closing has to do with understanding your escrow account balances and how we lock the loan with respect to the closing costs you want to pay.

If you can save even ½%, it may make sense for you to look at it.  Call us, there is no obligation with the call and the consultation takes less than 15 minutes.

15 minutes could save you 15% in your mortgage payment – hmm, I think I hear a catch phrase here – maybe I should copy write it.

Real Estate is on sale like never before.
You know this already.  Most people will not take advantage of these prices because they cannot see what is happening around them through the haze of the negative news media and the scare of some impending global gloom and doom.  But be that as it all may be, the simple fact still is that you could buy your next home, a move up in your own market, for a more favorable price than at any other time in the last 10 to 15 years.

You do not need to sell your current home to make this happen.  You can very conveniently manage your current home to produce income that if used to eliminate the mortgage will eventually net great passive income for you.  At today’s prices and interest rates you can reasonably purchase another home for yourself and pay off your existing home inside of the next 15 years.

Rates are very favorable.
Rates today are very low at an average of around 4.5% (15 year) or 5.0% (30 year).  Even if rates hits 7% in the next 24 months, that is still historically very low.  The biggest determinant of making money in real estate is NOT the interest rate you get on the mortgage, but it never hurts if you get a low one.  The government has made it artificially beneficial for home buyers to make a killing in this market.  Artificial that is, unless you actually lock in one of these low rates.  If you do that, then becomes very real for you.  In the face of potentially rising future rates and home prices, you can set your fixed loan terms today and hold onto them long into the future.

Renters are plentiful.
I have asked more than a dozen clients to take what I call the “Craig’s List Challenge”.  Take a picture of your own home and put in on Craig’s List “For Rent”.  Choose a payment that is a little more than your mortgage payment(s) and list only your email address as a way of taking requests.  Do this only if you are actually considering renting out your home.  I bet you have no less than five requests inside of a few days.

The point of this exercise is to show you that you have options other than selling your home.  Because of the tightening lending standards today, many good people are just a year or two from getting qualified to buy their own home.  They can rent from you while they work on their finances.  They might even buy your home from you in the end saving you even more money.

But I’m not the Landlord type.
Now may be just the time to join the growing crowd of landlords who are not the landlord type.  I’ve not met one person who owns rental homes that have always wanted to be a landlord when they grew up.  In fact I’m pretty sure of it.  They generally have another motive.

Let me runs some motivational numbers for you.  Let’s say you purchase a nice home for $100,000 at a deep discount from a bank or on a short sale.  You finance it using a 15 year fixed rate mortgage at better than 5% and with taxes and insurance your payment is just over $1000 per month. Then you rent it to a family with kids who will take very good care of it for $1100 per month.  You have to spend $2000 per year for maintenance and miscellaneous expenses but for the most part this is running at a break-even for you.

15 years from now your rental is paid for and generating $1500 per month in rent.  After taxes, insurance and maintenance, you are netting $12,000 per year.

You used very little of your own money by taking advantage of ideal market conditions,  to create this long term passive income stream for yourself and your family.

An even easier way to buy a rental home is to turn your home into a rental and purchase another home for yourself.  This kills two birds with one stone.  You were planning on “moving up” by now anyway and you get to make/keep a great investment in the mean time.

What are you waiting for?

Today’s post is all about giving FHA the love it deserves.

So. . . let my LOAN open the door . . .

Despite the rise in FHA’s up front insurance cost to 2.25% of the loan amount – FHA loans continue to gain market share as the most popular loan for home buyers – and not just first timers either.

The two big drawbacks of FHA loans are the monthly mortgage insurance (most FHA loans but not all) as well as the up front mortgage insurance premiums.

That means you will “owe” more than your sale price minus your down payment because of the Up Front Mortgage Insurance Premium which is not charged on Fannie Mae and Freddie Mac insured mortgages. You will also pay around $45 per month for every $100,000 you borrow.

Fewer and fewer home buyers are deterred by these in today’s market. There are at least 10 reasons for this:

1. First time buyers who have not been able to save a full 10 or 20 percent down payment are able to get in for just 3.5% down.
2. Move up buyers who sold their home for less net cash to them are still able to be buyers and buy a home from this market because of the low down payment.
3. The monthly FHA mortgage insurance can be dropped in as soon as 5 years.
4. On 15 year FHA fixed term loans with 10% down – there is NO monthly Mortgage Insurance.
5. 6% seller concessions allow for total money invested to be 3.5% of the sale price in most cases.
6. No interest rate add ons for 640 or above credit scores.
7. FHA Interest rates are as good if not better than conventional loan rates – with no points as of this writing they are at or better than 5%.
8. Underwriting is easier than with a conventional PMI loan and believe it or not, the appraisal process is faster and gives fewer hassles.
9. You can buy a home almost anywhere and at any income level. Even though in most markets the maximum loan amount is just over $270,000 – this is not prohibitive for most (95%?) qualified home buyers.
10. Even refinancing is easier. Those in a non-traditional (not Fannie/Freddie) ARM loan can refinance easier with the need for a lesser appraised value.

It’s not surprising that FHA loans are the loan of choice for many.

If you do have 20% down and your credit score exceeds 720, then there is no question that you should use a conventional loan and avoid the negatives with FHA. But for many who don’t – FHA opens the door.

So if I haven’t said it enough times in the last 30 days, I’ll just keep saying it. Now is a great time to buy your first home or trade up.

Let my FHA loan open the door – check it out today!

I am becoming more and more convinced that we will look back on this year, 2010, as the year we should have made that real-estate transaction.

What traditionally happens in volatile markets like stocks and bonds (and Real Estate these days) is that most people ask to be put on the bench just when the game gets interesting. Rather than riding it out, they wait it out. A few stay in and make a killing, but by and large most will miss out on the bulk of the gains because they were waiting.

Waiting for what? What is the signal that most people are waiting for?

They are waiting for “most people” to stop waiting.

Sadly that means they will be buying later at a premium price FROM those who were playing the game all along.

I met with a couple yesterday who, in the middle of this down market in East Lansing, MI, are not sitting out.

They have a very nice home in one of the beautiful neighborhoods near the Campus of Michigan State University (Go Spartans!). They paid in the $180’s for it in 2003 and their agent just gave them a current list price of $190,000. That was not easy to hear but it did not stop them from moving ahead.

They then added up how much they spent on that home making improvements over the past seven years. Adding a main floor bath room, extensive master suite work and a new kitchen, all of this was well over $20,000.  That means they would lose money if they sold at $190,000. Still they were undeterred and made plans to list their home.

Their agent then told them that they would not likely get an offer at $190,000 but something lower. The lower lip curled in just a bit at the thought of just how much lower, but then, they pressed forward to find out.

What is it that causes these homeowners to boldly move ahead through all of this bad news?

Opportunity!

The neighborhood they wanted seven years ago but was out of their reach is now on sale.  They can trade up today and afford what they could not afford before.

Seven years ago, the homes on the other side of the neighborhood were going for $290,000 to $325,000.

They just made an offer on their dream home for $205,000 and will likely get the deal at around $215,000.

They are very willing to give someone a $50,000 deal on their old home and sell for $180,000, or even $170,000, and get a nice deal of their own – $100,000 off.

All they had to do was play the game.

What in the world is everybody waiting for?!

Investment purchases in the third and forth months of this year slowed almost to a halt.

Joedy Patrick, a local Real Estate Investor and owner of Entrust Great Lakes, a self-directed IRA plan administrator (his group allows investors to purchase real estate inside their IRAs to avoid or defer taxation – reach him directly at 517-980-5143) agrees that investors by and large have opted to wait until the stimulus money has worked itself out of the system (unless the deal is really good).

Foreclosure is the name of the game on a couple of levels.  First, these are the deals that are attractive to investors because they can get homes at a deep discount.  Second, it is the presence of these deals that keep the total market low into the future, which keeps them from reaping the reward from selling the properties.

This is the tricky part – both of the following statements are true:

~As soon as property values here in mid-Michigan (or where ever you are) start to rise, you will see fewer foreclosures.

~You will not see property values begin to rise until you see foreclosure numbers begin to return to normal (very low) levels.

Investors know that property values will rise again.  The question is when?

Let’s say that you and I each buy a similar home in the same neighborhood for the same price.  I make my purchase this summer and you make yours in 2012, two years from now.  Later – let’s say 2015 – we each sell our home for twice what we paid for it.  We both got the same return on our investment yet your annual return was better than mine because you only had your money in for three years and mine was tied up for five years to get the same amount of profit.

Now, renting the homes in the meantime can equalize these a bit, but many investors are looking to sell the home in the next five to ten years for a profit rather than be landlords for an extended period of time.  The perfect deal is made at the bottom just before the market begins its incline.

They need to buy the home right, that is, for a low price.

They need to manage it well. Money put in covers money paid out each year.

They need to sell it for a profit as soon as possible OR hold it for income if rents received justify keeping the home longer term.

Investors understand supply and demand, so they did not want to compete with the frenzy of homebuyers who were after free money that was not available to them as investors.  They are now looking at making purchases again.

The message for buyers is this: now that the stimulus money is gone, you’ll get a better deal.  Buy Now.