Archive for June, 2011
Set Your Online Self Apart From the Pack
The internet is an enormous resource for people looking to buy or rent a home. Over the last several years, the amount of information that consumers can find online has mushroomed from a few elite sites into a universe where everyone in the real estate business has a website, a social network site, maybe a Twitter account, and other ways to communicate what they offer. It has become the place buyers go to learn real estate.
The National Association of Realtors reports 9 out of 10 buyers begin their real estate research online. That’s great news if you are marketing your properties online. But there are dark holes that you don’t want to be part of.
The problem is that much of the information on those websites is plain wrong. Once posted, a lot of information is left static and not updated. Prices and deal structures change in the real world but not in the virtual world. Houses are sold and the webpage remains active for weeks or even months afterward. Trulia reports that at least 21% of all online real estate postings are out of date.
Another area that provides potential buyers with bad information are the calculators that estimate house values based on some vague information the buyers enter into them. Most have been shown to be about 50% accurate. It’s misleading information for people trying to learn real estate.
All of this misinformation leads to buyers that show up to look at properties with unrealistic expectations. You don’t want to be part of that group. You want to separate yourself from the pack.
No End in Sight for Short Sales
If you have procrastinated about getting into the short sales game, it’s time to face the fact that short sales are going to remain a significant part of the real estate industry for years to come. It’s time that you take action in the form of real estate training focused on short sales.
Other experts are predicting that short sales will increase 25% this year alone. In particularly hard hit states like Nevada, short sales are up 65% for 2011. Industry predictions are that short sales will remain a significant part of the market for the next 5 to 8 years.
Currently, statistics show that only about 3% of short sales are resold within 6 months. The importance of this number is it is an indicator of short sales being rehabbed and flipped. You can expect this number to increase over the next several months as the short sale process continues to be stream lined.
The big players in the lending game have seriously ramped up their short sale efforts. A REO conference involving the major lenders was held in Fort Worth Texas two weeks ago. David Sunlin, the operations executive for short sales at Bank of America stated that BOA short sales have exceeded REO sales for the past year and a half. He also commented that the short sale department at BOA has grown from 150 to over 3,000 and that instead of each employee trying to handle thousands of short sale files, the average is now down to 75 per person. “We’re past the point where we’re bumbling around losing files,” Sunlin said. This past May alone, BOA completed more than 9,000 short sales.
Using a Wrap Around Mortgage for Commercial Property
When you have a new business with little or no credit history, it can be near impossible to obtain a commercial mortgage. Especially in today’s tight credit environment. Still, when you look around any main street in any town in the country, you will see many “For Sale” signs on plenty of commercial properties. It’s a great time to be making commercial real estate investments.
This could be the right time to break out an old favorite creative financing tool. A wrap around mortgage can be the best answer when lenders won’t make a loan to a new business. With a wrap around mortgage, you take out a new mortgage with the commercial property seller as the lender.
Often sellers prefer wrap around mortgages instead of installment payments because the seller’s name remains on the first mortgage and title. It’s less risk for them because they will be the first to know if the buyer stops making the monthly payment. If it happens, they can elect to continue making the first mortgage payment while foreclosing on the buyer with the wrap around mortgage. This prevents late fees and foreclosure costs from piling up while the seller works to regain control of the property.
Wrap around mortgages on commercial real estate investments are a little different from residential properties. This is due mainly to the fact that commercial mortgages almost always contain covenants. These are clauses in the mortgage requiring certain things to be done in order to keep the mortgage viable. For instance, a multimillion dollar commercial mortgage may require the business to maintain a certain level of profitability or the mortgage can be called in full. Or the first mortgage may contain a covenant that tenant vacancy rates must remain above a certain level or the lender has the right to assume some level of control over the property.
Current State of Foreclosures As Real Estate Investments
The residential foreclosure market is not going to improve any time soon. However, there is an upside to these as real estate investments.
Currently, the banks have 900,000 foreclosed houses on their books. That means they have title to them and are able to put them on the market. However, only about 1/3 are actually listed for sale. That leaves 600,000 bank owned houses that need to work through the market.
The oversupply doesn’t stop there. Another 1.2 million houses are at some stage of the foreclosure process. In many cases, lenders have slowed the process because they don’t want more inventory on their books right now. They know bringing more foreclosures onto the market will force prices even lower with little chance of making more sales. The logic is to keep the owners in place to perform some level of maintenance rather than let a vacant house deteriorate.
All of these foreclosures amount to at least a 2-year backlog that needs to work through the market before it returns to what we consider a “normal” market.
The good news for those looking for good real estate investments is that banks are listing these properties with an average price 35% below market comparables. That is just the beginning price. Because of market conditions, there is still room to negotiate the price lower. Some markets like Phoenix are seeing prices down 75% compared to 2006. It’s mostly all upside with no downside for those taking advantage of these real estate investments.
Experts confirm that a double dip recession has occurred in the residential real estate market. Nationally, house values are expected to drop another 5% during 2011. However, because the banks are bringing foreclosures onto the market in a controlled manner, prices are expected to stabilize next year.
Commercial Investing Confidence Continues Improving
Opportunistic investors are leading the commercial real estate recovery. They are taking full advantage of the low prices at which they can acquire investment properties.
As previously predicted, commercial loans are coming due but many that bought during the bubble years, between 2005 and 2007, are not able to refinance because the old loans are for more than the property is currently worth. That is resulting in sales of commercial property at discounted prices.
Many of the properties financed during the bubble years were only given a 5-year loan term. That means they need to be refinanced between 2010 and 1012. We are now right in the middle of that time period.
CoStar®, a leading commercial real estate information provider, reports that 77% of sales of property that had previously sold during 2005 – 2007 sold for a lower amount in April.
Additionally, sales volumes are up significantly. Year on year commercials sales were up 81% for April when measured by dollar volume. Completed transactions were up by 18% for the same time.
As the commercial sector’s recovery far outpaces the residential market, these low prices are not expected to continue over the long term. Where as the residential sector isn’t expected to recover fully for several more years, the commercial side expects a full recovery towards the end of this year or early next year.
There are many reasons to buy commercial real estate rather than residential. Particularly right now. One is that commercial real estate values depend a lot less on comparables than residential properties.
If other 3 bedroom, 2 bath houses in a neighborhood are selling for $125,000, any similar house you invest in will be closely tied to that number regardless what you do to improve it.