Katrina Williams' Snohomish Real Estate Blog
Tuesday, November 28, 2006

Market sets your home's value — and you may not like

Market sets your home's value — and you may not like

By Mary Umberger
Chicago Tribune

Here's one of those glass-half-empty/glass-half-full bits of news: Online company househunt.com recently surveyed real-estate agents and concluded that 51 percent of U.S. home sellers are getting 95 to 100 percent of their asking prices. You can look at that glass as half-full because, well, about half seem to be hitting their target.

But then there's the rest of America, where weeds are popping up around the for-sale signs.
During the housing boom, selling your home for 95 percent (or better) of your asking price became something of an icon — a reliable, reasonable goal. But as the market has cooled, "asking price" has become a moving target.

How much is a fair price, anyway?

A response from the glass-half-empty camp might sound like the late cartoonist Jeff MacNelly's parody of how the Internal Revenue Service determines how much tax you owe: How much did you make? Send it in. That is, no matter how certain you are that your home is worth a specific figure, there's a good chance that it will turn out to be less in today's climate.
"The old, easy model [for pricing a house] is to look at the computer to see what sold last year and add 5 percent," said Stephen Baird, president of Baird & Warner Real Estate in Chicago.
"That model doesn't work now."

Baird said that coming up with a figure has become less an exercise in math than an exercise in group-think for agents.

"We get the office together and price the property," he said. "It's much more of an art than it was a year ago." Brokers, agents and people trying to sell their homes on their own have said that starting out with the right asking price is akin to being told to shut up and eat your spinach.
"You have to look at what is actually selling in your price range right now," Baird said. "That determines the market.

"The period of time you look back at now [for sales prices of comparable properties, or comps] is three months. Anything over three months is not a good comp now."

Even the economics-impaired can grasp this concept: Your home (or your car or your collection of Mark Foley campaign posters) is worth only as much as someone will pay you for it.
Today. Or, as Baird put it: "The market is going to tell you what a house is worth. You just may not like what the market says."

"If you want to sell your house against the 20 other properties that are like it, you have to get aggressive on your price," Baird said. "Out of that 20, somebody will step out from the pack and price it more aggressively, and it will sell." Lest we end this chat on a negative note, here's a reminder of the cyclical nature of real estate: If you're a seller and you have the luxury of time, conditions are likely to improve.

"People are sitting on the sidelines waiting to see what happens with pricing," Baird said. "The nice part about this business is that demand doesn't go away, it just gets put off. If somebody isn't going to get what they want, they're going to wait until next year."

Copyright © 2006 The Seattle Times Company

# posted by Katrina Williams @ 2:07 PM

Investing in Real Estate and Five Pitfalls in Investing/Renting

Making investment in property pay off
By Amy Hoak, MarketWatch

Investing in real estate most likely won't produce the get-rich-quick results promised by many a late-night infomercial. But for investors willing to do some homework, make a good purchase and properly manage a piece of property, the rewards can be substantial. Various strategies can be used on the road to real-estate wealth. In one, investors buy a house, renovate it in short order and sell for a profit. In another, investors buy the property with the intent to hold it for many years.

A common approach is to buy an income-producing property — such as a single-family home, apartment building, office or retail building, or farmland — with the intent to rent all or part of it. By having tenants, investors benefit not only from appreciation over time, but also from the rental cash flow. There's also some inflation protection because as operating costs increase, rents can increase.

The downside: Investment in real property — unless you're buying shares in a real-estate investment trust (REIT) — isn't as liquid as putting money into the stock market. And real-estate markets are often cyclical.

In fact, those averse to the risks involved with buying property should instead consider a REIT to add real estate to their portfolios. A REIT takes the management issue out of the equation, provides more liquidity, can spread risk geographically, and also produces income. REITs, publicly traded companies that own and manage real estate, are required to pay out at least 90 percent of their taxable income as dividends.

First, consider what kind of expertise you bring to the table. For example, contractors can renovate a property; lawyers might write up leases. "Everyone brings a certain amount of sweat equity," said Kyle Cascioli, an adjunct professor of real estate at the University of Denver's Burns School of Real Estate and Construction Management.

Maybe your value is on the management side.

Those thinking about becoming landlords should do some soul searching before deciding whether they can handle the job, said Thomas Lucier, a Florida-based real-estate investor and author of "The No-Nonsense Real Estate Investor's Kit." Nine out of 10 people aren't suited for the business of managing tenants or the constant upkeep that the property will require, he said.
And for an investor with a modestly sized piece of real estate, hiring a separate property manager can eat deeply into the bottom line, said Rebecca McLean, executive director of the National Real Estate Investment Association. After all, income-producing real estate isn't just an investment — it's a small business.

You'll want to tap the knowledge of a local real-estate professional for help in finding and evaluating an investment property, McLean said. It's best to contact a broker or agent who works regularly with investors, she said. It's possible to go it alone, but get ready to do some research.

Location will always affect the value of any piece of real estate. In residential properties, the health of the local economy and school district are necessary considerations. Meaningful due diligence is also required on commercial properties; leases usually span longer than a year, and research on current tenants is a must.

Deciding whether the property is affordable involves a little more homework. Budget every cost that will be tacked on to the price, including closing costs and insurance. If the property is a fixer-upper, inspections should prove its structure is still sound; make sure to add improvement estimates into the equation, including a cushion for unforeseen extras.

Just as important as having a plan to enter the market: having an exit strategy. Investors should estimate how long they expect to hold the asset, said Joseph Fisher, president of Indianapolis-based Real Estate Investment Services, which specializes in developing, leasing and managing investment real estate.

And despite the income scheduled to hit the books each month, don't plan to keep every dime, said Lisa Moren, an Oakland, Calif.-based real estate investor and author of "Real Estate Investing for The Utterly Confused." She advises having an escrow account for required fixes that pop up and disruptions in cash flow caused by vacancies.

Five pitfalls: What to watch out for when buying and managing an investment property

OVERPAYING FOR THE PROPERTY
Good research is the key to avoiding this mistake. "You make your profit when you buy, in most cases, because you buy below market value," said Florida real-estate investor Thomas Lucier. Some investors can profit by buying properties that need a little work or those that make money but are mismanaged, Lucier said.

OVERLOOKING RULES AND REGULATIONS
Rules abound in the housing sector, from federal fair-housing regulations to building-code issues to laws that spell out how lead paint is to be disclosed. Fines for noncompliance can be hefty, so do your homework, said Rebecca McLean of the National Real Estate Investment Association.

NOT SCREENING FOR GOOD TENANTS
Check tenants' credit records and their employment to make sure they can afford the monthly payments. Also, the longer a tenant stays, the better. Every time a renter moves out and a new one moves in, it costs about two-and-a-half months' worth of rent — "whether in marketing, down time and/or repairs to the property," McLean said. And that's assuming there is no severe damage to the property.

TAKING ON TOO MUCH, TOO SOON
You may want to start small, perhaps with a duplex, to decide whether this type of investment works for you, Lucier said. Also, don't go overboard on improvements. Major spending in areas that won't provide a decent rate of return on investment cuts into your bottom line, McLean said.

ENTERING INTO A BAD PARTNERSHIP
Many investors partner with others — often a novice teams with a real-estate professional who knows the business — to afford a purchase, but it's an arrangement you must be comfortable with, said Joseph Fisher of Real Estate Investment Services. Review an investor's past performance before agreeing to work together — especially if you're new to the business.

Copyright © 2006 The Seattle Times Company

# posted by Katrina Williams @ 1:53 PM

Home Loan Demand Falls

Home loan demand falls even though mortgage rates were lower
Posted 11/22/2006 9:39 AM ET
By Julie Haviv, Reuters

NEW YORK — Mortgage applications fell for the first time in three weeks despite a dip in mortgage rates to their lowest level since January, an industry trade group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, for the week ended Nov. 17 fell 3.7%.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.13%, down 0.02 percentage point from the previous week, and well below a four-year high 6.86% in June. Interest rates were also below year-ago levels of 6.26%.

The 30-year fixed-rate mortgage was at its lowest level since the week ended Jan. 20, when it reached 6.04%. The MBA's seasonally adjusted purchase index, widely considered a timely gauge of U.S. home sales, fell 2.8% to 401.4. The index was substantially below its year-ago level of 472.3. The group's seasonally adjusted index of refinancing applications fell 4.3% to 1,935.3. A year earlier the index stood at 1,584.1.

The refinance share of applications increased to 48.6% from 48% the previous week, remaining at its highest level since February 2005, the MBA said. Fixed 15-year mortgage rates averaged 5.88% the week ended Nov. 17, up from 5.85%. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.88% from 5.87%.

The ARM share of activity was unchanged at 25.5% of total applications. The MBA's survey covers about half of retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.

Copyright 2006 Reuters Limited.

# posted by Katrina Williams @ 1:50 PM

Wednesday, November 15, 2006

Who's Buying Real Estate? The Number of Single Female Buyers Is on the Rise


Who's buying houses now?
First-time buyers are dropping out of the market, but the number of single female buyers is on the rise, according to a new survey.

By MarketWatch.com

Despite low mortgage interest rates, a smaller percentage of first-time homebuyers are entering the market, according to an annual profile of buyers and sellers just released by the National Association of Realtors.

During the year ending in June, 36% of all buyers who purchased a home were first-time buyers, according to the association's annual profile of homebuyers and sellers. That's down from 40% a year ago. About 7,500 buyers and sellers were surveyed. Part of the reason for the declining share of first-time homeowners: Declining affordability for those entering the market after the housing boom of the past couple of years bumped up home prices, said David Lereah, the NAR's chief economist, during a news conference held at the Realtors' annual convention in New Orleans. A greater number of second-home sales also may have contributed to a lower percentage of first-time buyers overall.

"I hope that it's not a trend. I hope that as affordability starts to improve we see more first-time homebuyers," he said. "It's critical for the housing sector." Single women make up 22%; single men, just 9% The percentage of single female homebuyers, however, inched up in the survey to its highest level on record. Twenty-two percent of all homebuyers were female and on their own, up from 21% a year ago and up from 14% in 1995. In comparison, single males accounted for 9% of homebuyers, unchanged from last year.

Other statistics helped validate the jobs of the thousands of Realtors at the convention: 80% of homebuyers said they used the Internet to search for a home, but 85% relied on a real-estate agent as a source of information about homes for sale. And 36% first learned about the home that they purchased from an agent, versus the 24% who learned about the home that they purchased online.

Among those who used the Internet to search for a home, 81% purchased a home using a real-estate agent.

Although real-estate agents were leery of the Internet 10 years ago, fearing it would take away business, 80% of firms now have their own Web sites, Lereah said.

"What the Internet has done for consumers, potential buyers, is provide them with information, give them a comfort level," he said. "But it all comes down to you're making the biggest financial transaction you're ever going to make for 99% of these people -- and they need guidance, they need someone they can trust and who has been through this before."

Sellers have to wait longer Reflecting the beginning of a softening market, sellers had their homes on the market for a median of six weeks, according to the report, an increase from the four-week median reported a year ago. "It makes some sense: We had a boom in 2005, and in this time period, we're coming to a close and beginning to stall," Lereah said.

The typical home sold for 98% of the listing price in this year's report; it sold for 99% of its listing price a year ago. But even in this year's figures, 12% of homes sold for more than its listing price.

Nineteen percent of sellers said that the primary reason for selling their home was because it was too small, while 13% said the neighborhood was less desirable and 10% decided to move so they could be closer to their job. The typical home seller owned their home six years.
Skipping the agent Twelve percent of sellers said they sold their home without a real-estate agent, down from 13% a year ago and 20% -- the report's recorded high -- in 1987. Of those who sold their home on their own in this year's survey, 40% said they sold the property to someone they already knew.

Of those who did use an agent, 73% used a full-service agent, 8% used a discount broker and 7% used a minimum-service agent who may have done as little as list the home on the Multiple Listing Service, the survey found.

"Limited and minimal brokerage services cater largely to owners who would prefer to sell on their own but recognize they need some level of professional help," Thomas M. Stevens, president of the National Association of Realtors, said in a news release. "These services generally are a good match for certain consumers, and help to explain a decline in owners selling purely on their own."

# posted by Katrina Williams @ 12:18 PM

Tuesday, November 14, 2006

Prospective homebuyers - Your time is now!

Home sales drop, not prices
By Elizabeth Rhodes
Seattle Times business reporter

Prospective homebuyers who've been frustrated by too much competition for too few homes — your time is now.

But don't expect to find widespread price breaks, because home prices are up.
In fact, after four months of either steady or slightly declining prices, King County's median single-family house price rose in October to $440,000, up from $425,000 in September.
The number of houses and condominiums for sale in the central Puget Sound region — King, Snohomish, Pierce and Kitsap counties — was up from 27 to 59 percent last month, compared with a year earlier, according to statistics released Tuesday by the Northwest Multiple Listing Service.

Increasing inventory is giving buyers more clout, said Lennox Scott, chairman and chief executive of John L. Scott Real Estate. "We're adjusting from a frenzied market back down to a strong market," Scott said. "Buyers have selection."

Meanwhile, the number of sales signed last month declined 7.5 percent in Snohomish County, the region's smallest drop, and 16.5 percent in Pierce County, where sales dropped the most. The other counties' declines were in between.

Bob Melvey, assistant manager of Windermere's Ballard office and a 30-year sales veteran, gauges market strength by the "absorption rate." That's the number of sales in a given month divided by the number of homes for sale at the end of the month.

A 15 to 25 percent absorption rate means a balanced market favoring neither buyer nor seller. A higher rate favors the seller; one lower favors the buyer. In King and Snohomish counties, the absorption rate favors the seller, according to Melvey's analysis, but is markedly down from earlier this year. It was above 60 percent in King County last spring; now it's more like 30 percent, although it's higher than that in some neighborhoods.

For Melvey's absorption rates by area, go to www.melvey.com and click on "market stats."
"I'm amazed the market was basically on steroids for as long as it was," Melvey said. "It makes sense it's going to have to take a rest. But even with this absorption rate, it's not as if the market has tanked and the sky is falling."

That's particularly true with prices. Counties in the central Puget Sound region posted double-digit price increases, or close to that, last month for houses and condos combined.
In King County, for example, the median price of houses and condos hit $391,300 in October, compared with $355,000 the previous October. That's a 10.2 percent increase.
The median prices in Snohomish and Kitsap counties also rose slightly more than 10 percent, while Pierce County's was at 9.2 percent.

The real gain was in appreciation of King County condominiums. Compared with a year earlier, the median price of King County condos was up 20.8 percent to $259,700. King County has just over a three-month supply of single-family homes (at the current sales pace), compared with a two-month supply a year ago. It has slightly more than a two-month supply of condominiums, compared with just under 18 months last year at this time.

Nationwide, there was a seven-month supply of existing homes at the end of September, the most recent statistic from the National Association of Realtors.

Elizabeth Rhodes: erhodes@seattletimes.com
Copyright © 2006 The Seattle Times Company

# posted by Katrina Williams @ 10:43 AM

Zillow property estimates deceptive, complaint says

Zillow property estimates deceptive, complaint says
By Kenneth R. Harney
Syndicated Columnist

Have you ever checked out the satellite photos and market value estimates of homes in your neighborhood on Zillow.com — the Internet real-estate site that offers "free, instant valuations and data for 67 million-plus homes"?

Zillow was launched with major media fanfare last February, backed with a reported $57 million in venture capital. It is one of the most popular real-estate sites on the Web. It also has begun distributing its free "Zestimates" through Yahoo.com and real-estate-brokerage sites. But now Zillow is coming under harsh scrutiny. In a complaint filed Oct. 25 with the Federal Trade Commission, the National Community Reinvestment Coalition charged that Zillow knowingly deceives the public by presenting its property estimates as accurate even though they are frequently far off the mark.

The nonprofit coalition, comprising housing and economic-justice organizations around the country, says its own audit of Zillow's accuracy documented that its valuations are within 10 percent of actual market value "less than one-third of the time."

The allegedly erroneous estimates are especially harmful in low- and moderate-income and minority neighborhoods, the complaint says. "While overvaluations were prevalent in predominantly white areas, undervaluations were more frequent in communities that were predominantly African-American or Latino by census tract," the complaint charges.
That alleged disparity, in turn, has opened the door to a variety of deceptive and predatory real-estate practices in those neighborhoods, the coalition says in the complaint.
In a statement, Zillow called the coalition's complaint groundless.

Stan Humphries, Zillow's director of advanced analytics, said his company's own internal audits found a median margin of error of 7.2 percent nationwide.

Audits also found that, contrary to the coalition's claims, undervaluations were more commonplace in higher-cost areas, whereas overvaluations were more typical in lower-priced neighborhoods.

In the complaint, the coalition cited two other studies — one by online service MSN Money and one by R. James Girardot, president of an appraisal firm in Washington state.

MSN examined Zillow's valuation estimates for a sample of houses in five metropolitan areas and found them within 10 percent accuracy just 29 percent of the time.
The five metropolitan markets — Seattle; Minneapolis-St. Paul; Scottsdale, Ariz.; Cincinnati; and Portland — all were ranked by Zillow as among its most accurate areas for valuations, according to the complaint.

Girardot's study covered 200 houses, comparing Zillow valuations with actual closed selling prices and found inaccuracies ranging from 11 percent to 50 percent. In one case, Zillow's estimate valued a property at $246,865 but the house sold for $489,950 last July.
The Zillow-coalition dispute throws light on a simmering tension within the residential real-estate market:

On one hand, mortgage lenders are demanding valuation alternatives that are faster and cheaper than traditional, full-blown appraisals. The proprietary technology Zillow uses for its estimates is a form of "automated valuation model," or AVM.

Many banks and mortgage companies use commercially marketed AVMs for home-equity loan valuations and to help spot fraudulent or grossly inaccurate appraisals. Traditional appraisals generally cost anywhere from $300 to $500; AVMs can cost a high-volume lender $20 or less.
On the other side of the issue, professional appraisers are threatened by lenders' push for lower costs and high-tech valuations. Although they sometimes use commercial AVMs as data supplements, appraisers insist that their time-tested, hands-on methods produce the most accurate valuations.

San Diego appraiser Vicky Cassens Zillioux says that "valuing a property for a financial decision is not a game — and should not be treated lightly by the consumer, lender or the vendor supplying that value."

She notes that appraisers are held to high standards by lenders and regulators, and "a similar level of accuracy should be expected by the consumer at Zillow.com."

Kenneth R. Harney: kenharney@earthlink.net
Copyright © 2006 The Seattle Times Company

# posted by Katrina Williams @ 10:32 AM

Wednesday, November 08, 2006

Suzie Lasher Heid Welcomed as New Marketing Director


Suzie Lasher Heid has accepted the position of Marketing Director at the Katrina Williams Realty Group of John L. Scott's Lynnwood/Martha Lake branch. Suzie's wealth of marketing and real estate knowledge will allow her to guide the KW Realty Group to success.

Having been born and raised here in Snohomish County, Suzie spent six years serving active duty in the United States Air Force. After extensive language training at the Defense Language Institute in Monterey, CA, she was sent overseas and worked as a Polish/Russian flight linguist on the RC-135s at RAF Mildenhall, UK. When she wasn't flying, she was traveling extensively throughout Europe. Her time overseas included a 3-month deployment to the Middle East where she proudly served in support of Desert Storm. But her love of the Northwest brought her back to the area to settle down.

Suzie received her BA in Psychology in 1995 from Central Washington University, and her MBA in 1999 with an emphasis in marketing. Her responsibilities for the KW Realty Group and SnohomishCountyHomeFinder.com are to maintain all marketing programs, and to ensure that your home is marketed to its full potential. Suzie’s promise to clients is to provide outstanding service, top notch marketing, and a full-time friendly voice! Her goal is for every client to walk away from their real estate experience with a feeling of joy. Outside of the office, Suzie enjoys spending time with her six year old son, Max, working on her historic 1910 Everett home, and being involved with her church.

# posted by Katrina Williams @ 2:15 PM

Northwest Experiencing a Tilt to the Buyers' Side in Homebuying Negotiations!

Pacific Northwest home buyers gain advantage despite price growth, rising inventory helps to level playing field
Wednesday, November 08, 2006
Inman News

Home sales in western and central Washington sank for the eighth straight month in October, as a surge in listings gave buyers more time to gauge the market, according to the latest figures from Northwest Multiple Listing Service.

Brokers reported 8,036 home sales last month, down 11 percent from a year earlier when 9,035 sales were recorded, according to MLS statistics.

In October, the median price paid for single-family homes and condos increased 9.8 percent from a year ago to $315,000. In King County (Seattle), which accounts for about four of every 10 sales in the MLS service area, the median price of a single-family home (excluding condominiums) rose 12.8 percent, increasing from $390,000 a year ago to $440,000 for sales that closed last month. Condo prices jumped 20.8 percent, climbing from a median selling price of $215,000 a year ago to last month's figure of $259,700.

For most counties in the Northwest MLS market area, price gains from a year ago tended to be in the range of 9 percent to 11 percent, NWMLS reported. Some 11,910 new listings of single-family homes and condominiums were added to the MLS during October, about 500 more than a year ago, with every county in the region reporting double-digit inventory gains. At month end, the total inventory stood at 36,282 listings, up 48 percent from the same month last year.
"The evidence looks pretty convincing that the market has corrected itself and we are experiencing a tilt to the buyers' side in the arena of negotiations," said NWMLS director Dick Beeson. This "gentle incline," as he described it, presents some good opportunities for buyers, particularly in areas like Pierce County where the selection is about 50 percent larger than a year ago.

Kirkland, Wash.-based Northwest Multiple Listing Service encompasses more than 2,100 companies with approximately 27,000 sales associates. Together, they serve 19 counties, mostly in western Washington, plus Grant, Kittitas and Okanogan counties in the central part of the state.

***
Copyright 2006 Inman News

# posted by Katrina Williams @ 2:13 PM

Tuesday, November 07, 2006

Investment opportunity in Everett - Possible subdivide for two view lots!


INVESTMENT OPPORTUNITY! ~ Shy 1/4 acre ~
5401 S. 2nd Avenue
Everett, WA 98203

Welcome to Historic Lowell. Be near Everett’s new Riverfront project! This two story home with basement was built in 1924. Enjoy the remodeled master suite upstairs with its jacuzzi tub and sitting area. Downstairs are two additional bedrooms and a fully remodeled bathroom. Enjoy the original hardwoods throughout the living room!

Additional features include 9’ ceilings, vinyl windows, vinyl siding, gas fireplace and a large kitchen with eating area. Watch the sunrise and soak in the incredible river and mountain views from your back deck! Corner lot, alley access to back garage. Large shy 1/4 acre lot with possibility for another view lot. Owner has paperwork on subdivision.

Priced at only $324,950!
MLS#26180776

Call us for more details. Katrina Williams Realty Group, John L. Scott LML.
(425) 280-4655 or log onto www.SnohomishCountyHomeFinder.com

# posted by Katrina Williams @ 3:01 PM

Quick Turnaround Investments - A Flippers 10 Mistakes

The 10 mistakes that make quick-turnaround house investments risky
By NOELLE KNOX
USA Today
Related

A flipper's 10 mistakes
SACRAMENTO, Calif. — If there's a poster child for everything that went wrong in the real-estate boom, it just might be Casey Serin.

In one year, the 24-year-old Web-site-designer-turned-real-estate-flipper bought eight homes in four states. In every case but one, he put no money down.

That April, at his peak, Serin had $93,000, which he had taken out of the homes as he bought them. By July, he was broke, desperate for one last deal.

Now? Serin has $140,000 in credit-card and credit-line debt and five houses in foreclosure. Last month, he started iamfacingforeclosure.com, a blog that's drawn both notes of condolence and expletive-laced condemnation.

"I did some stuff shady, but I'm not going to hide from it," he says. "Somebody can learn from it. I've already had people contact me and say, 'Hey, I'm in the same place.' "
The rise and fall of Casey Serin is a tale with moral and financial lessons for real-estate buyers, lenders and regulators.

Having consumed real-estate guides and seminars, Serin made just about every mistake a newbie could make — most of them, he admits, were no one's fault but his own — from fudging loan applications to buying homes sight-unseen.

That he began with bold dreams of class mobility makes his fall a peculiarly American saga.
Serin didn't know much about real estate at 19, when he bought his first condo.
As a Web-site designer, Serin was earning $35,000 a year at S.M.A.R.T. Association, a maker of marketing systems for health-care providers.

He quit to start his own Web-design company but couldn't earn enough to cover his mortgage. So he moved in with his parents and sold the condo a few months later. His profit: $30,000.
"My goal was to reinvest that money," Serin says. "But I also needed a car. My car was falling apart. I used some of it to keep me going and for living expenses and things. And I used some of it to go on dates."

He also stopped working for three months.

By the time he married in 2004, the money was gone. He and his wife used credit cards to cover living costs because Serin's business wasn't bringing in enough money.

By the time he found a job that summer as a Web designer, the couple had piled up nearly $20,000 in card debt, half of which they'd spent on real-estate courses. He bought Carleton Sheets' "No Down Payment" real-estate program and attended seminars by Russ Whitney, author of "The Millionaire Real Estate Mindset," and others. "Sure, they used pressure sales tactics to get you into it, but looking back on it, I don't regret it," Serin says. "They told me how to start safe, but I really didn't start safe. I went all out. So it was my own fault."

As with all investors, Serin's goal was to build wealth. He was intrigued by Robert Kiyosaki's "Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money — That the Poor and Middle Class Do Not!" "My eyes were opening up: 'Oh, OK, this is how the world works,' " he said.

Mistake 1
Using "liar loans"
In October 2005, Serin was desperate to pay off credit cards. But he was eager, too, to put his real-estate training to use.
He sought "a motivated seller — someone who wants to sell quick and doesn't mind giving a discount to get the deal done."

He found a Sacramento couple who'd twice cut the price on their home and were asking $360,000. Aware that the market was softening, Serin successfully bid $330,000, including his closing costs.

But he also wanted to pay off his credit cards. So he took out a $360,000 mortgage and asked the sellers to give him $30,000 in cash once the deal closed.
"I was able to qualify for the loan at 100 percent financing," Serin says. "I used a 'stated-income loan.' It was really higher than I was making, so it was a 'liar loan' — that's what they call them in the industry."

Stated-income loans were created to help people with variable incomes, such as commission-sales jobs, qualify for mortgages. Lenders require little or no proof of income, but they charge a higher interest rate to compensate for the risk.

Stated-income loans have grown in pricey areas where traditional buyers are stretching past debt-to-income lending ratios, and some lenders turn a blind eye. In California, 75 percent of purchase loans this year have little or no documentation of income, up from 34 percent in 2000, First American LoanPerformance says. But Serin also deceived the bank by saying he'd live in the home. Banks typically charge higher rates and require larger down payments for investment properties.

"Lying on a mortgage application is a federal crime," says Joseph Falk of the National Association of Mortgage Brokers. "It includes bank fraud, wire fraud and mail fraud and potentially a host of state offenses. This can result in jail time." At the time, though, Falk says, some lenders were willing to ease their criteria for borrowers because, with housing prices surging, they knew they likely wouldn't lose money even if the loan went bad.

Mistake 2
Overpaying
Serin flipped the Sacramento house immediately and agreed to purchase the buyer's old house. But Serin's buyer needed to put 20 percent down and had to pay a penalty to the bank for paying off his mortgage early. So Serin helped him out.

"I paid too much for his house," Serin concedes. And since he'd already used cash from the first house to pay off credit cards, Serin took out a $10,000 credit line to pay for repairs on the buyer's old house.

Mistake 3
Lacking cash
Serin put the second house on the market but lacked the money to pay the $2,500 monthly mortgage, his rent and payments on the credit line. So he agreed to a lease-purchase deal: He rented the house with an option for the tenant to buy it. Acting in haste, he rented to tenants who could pay just $1,400 a month. "I got desperate," he says. "I couldn't flip it and I had to stop the bleeding."

Mistake 4
Quitting your day job
"Now, I'm thinking, 'I've got negative cash flow, I've got the credit line. I need to do more deals.' " he said. As the California real-estate market hit the skids in late 2005, investors began looking in such states as New Mexico, Texas and Utah, where prices were still climbing. Serin, with dreams of becoming a full-time investor, decided to take three weeks off work in January and go to New Mexico.

"My goal was this: to find enough deals in three weeks that I could put under [a sales] contract so I could have enough in the pipeline so that it's safe for me to quit my job," he said.
"If I can't get anything out there, then I go back to my job. But in my mind, I was already succeeding and I wasn't looking back."

He bought two homes in New Mexico with no money down and liar loans. He took back $20,000 in cash, enough to carry his payments for a while. Back in Sacramento, he gave two weeks' notice.

Mistake 5
Hiring an unlicensed contractor
Serin next bought a house in Modesto, Calif., that he'd found through the Internet. The deal was packaged by a wholesaler, which finds an underpriced home, puts it under contract then transfers it to an investor in exchange for a fee of $5,000 to $15,000. The house was appraised at $380,000; Serin paid $323,000, including closing costs and $15,000 he got back from the seller. The wholesaler "told me the repairs that needed to be done, but it was a lot more than he described."

Serin hired a contractor, but when he sought the license number, he couldn't find any records. The contractor said the work would take a month or two. After three months, the job was only half done, and the contractor wanted more money.

Mistake 6
Buying sight-unseen
The sixth home Serin bought was in Utah. A developer had subdivided a tract and sold off the lots for custom homes. The last lot had a 25-year-old house on it.

"I bought it sight-unseen," Serin recalls. "[The developer] told me, 'It's outdated; you just have to update everything.' I didn't realize, not only is it outdated, it's awkward-looking. Every room had a different color carpet. Some rooms had a photo-type wallpaper with nature scenes."
He realized that the $18,000 in cash he pulled out of the deal wouldn't begin to cover the renovation needed. He put the house back on the market and left town.

Mistake 7
Buying out of state
On the trip to see the Utah property, Serin stopped in New Mexico. One of the homes he'd bought there was rented; the other was on the market but not selling. Fearing he'd soon have to start paying the mortgage, Serin tried to rent it out with an option to buy.

"I was even saying, 'You don't need to put anything down, just show me you have a good job, good credit and take over,' " he says. "But I couldn't do it fast enough. I was only there a week and a half."

Mistake 8
Buying too much too fast
The seventh house was near Sacramento. "I basically used up all of the equity, and the market is already going down," Serin says. "But it made sense to me at the time because I'll take the $50,000 [cash back from the seller]. I'm finding it takes a lot more money than I thought, and what if I run out of the money I already took out?"

The mounting financial pressure was getting to the young flipper. "I'm thinking about how to use the cash [backs] wisely and keep everything afloat," Serin says. "I realize I'm buying way too much. I'm not able to manage it all. And it just sort of happened. By April, I had six houses."
But he didn't stop buying. He was caught up in the frenzy.

Mistake 9
Underestimating costs
In May, he snatched up a house in Dallas. "I thought it was going to be my best deal so far because of the spread," Serin says. The wholesaler said the property was appraised at $310,000, and the owners would sell it for $190,000, but it had to close quickly.

Unable to get another loan so fast, Serin went to a private lender, who appraised the property at $275,000. To get the loan, Serin had to put down $30,000 and put $30,000 more into escrow to cover the needed repairs. Sight-unseen, Serin went for it. When he finally saw it, he said: "The layout was weird. There was a garage conversion, which I knew about, but because of my inexperience, I didn't know the garage conversion kills it because very few people want an extra room. Most people want the garage."

Serin thought he could renovate the property for $15,000. "I ended up spending $30,000," he said. "It ended up being a monster." His bank balance was dwindling. Serin was also burning cash traveling between his properties. He purses his lips and inhales sharply. "That's the sound I was hearing," he says.

Mistake 10
Having a poor exit strategy
Having just read "How to Sell Your Home in 5 Days" by Bill Effros, Serin flew to New Mexico in June and auctioned the vacant house in one week, eking out a tiny profit. He tried it a week later in Texas. A disaster. Just three low bids. By July, Serin was out of cash and living off credit cards. He took out more lines of credit to try to keep pace with his mortgages.
He wanted to go for one last deal in New Mexico. His wife saw copies of the letters he'd written to the banks.

"She's like, 'I don't want no fishy business.'

Part of me is like, 'Well, I know it's not right. I know I'm lying to the banks, but I've got to do what I've got to do. I got into this mess. I've got to get out somehow.' "And it was like, once you make one lie, you've got to keep lying, in a way." His last loan was rejected, and Serin hit bottom. The bills for his mortgages and other debts total $20,000 a month.

He says he's determined to pay off his loans. He's considering bankruptcy, restructuring the loans and trying to get another Web-design job. Serin's current situation is bleak. He is unemployed, as is his wife, who has gone back to college to get an accounting degree.
They rent an apartment and have $140,000 in debt, and the remaining five houses he owns are facing foreclosure.

Yet, ever the optimist, he says: "There might be some other possibilities in the works right now for some additional real-estate deals that would be completely above board and allow me to make some money.

"There are some wholesaling opportunities where you find a contract and sell it to another investor. You can make five, 10 or 15 grand on that stuff. That's enough to almost carry it for a month."
Copyright © 2006 The Seattle Times Company

# posted by Katrina Williams @ 2:55 PM

Friday, November 03, 2006

Baby Boomers Bigger on Real Estate - Smart Financial Investment

Study finds boomers bigger on real estate
By Kenneth R. Harney
Syndicated columnist

Rename them the real-estate boomer generation: A comprehensive new demographic study reveals that the 78 million Americans born between 1946 and 1964 have a passion for owning real estate unlike any in the nation's history.

Consider these findings: • Ninety-six percent of boomers believe that owning a home is a very smart financial investment, and nearly four out of five own homes. One in four boomers owns other forms of real estate besides a primary home — including one or more vacation or seasonal retreats, acreage or income-earning property.

• The value of boomers' primary homes varies sharply by geographic region. Overall, the median market value of their homes nationwide is $181,700. But in the Midwest, the median is $143,400; in the South, $147,800; in the Northeast, $215,000; and in the West, $359,100. One of every 14 boomer households in the Western states owns a home worth $1 million or more.
• Home equity plays a huge role in boomers' financial planning and well-being. Their median equity stake — the market value of their property minus mortgage debt — is $100,000. The median household net worth of boomers — financial holdings plus real estate, minus all debt obligations — was $149,500 in early 2006. Of boomers aged 50 to 60, 23 percent control equity stakes of $250,000 to more than $1 million. Fifteen percent of boomers aged 42 to 49 already have accumulated $250,000 to $1 million in home equity.
• Home equity represents a significant percentage of total household net worth for most boomers. Thirty-six percent of homeowners aged 50 to 60 report that the equity in their primary residences totals 51 to 100 percent of their household net worth. Thirty-eight percent of boomers between 42 and 49 report the same.

The new study, conducted by market researchers at Harris Interactive between March 31 and April 6, polled a statistically representative sample of 1,969 boomers. The project was sponsored by the National Association of Realtors and has a margin of error of plus or minus 2 percentage points.

Boomers not only believe strongly in accumulating real estate, but they also intend to keep doing so even as they head toward the traditional retirement years. An extraordinary one out of four boomers between 50 and 60 consider it very likely or somewhat likely that they will buy more real estate within the next year.

Among boomer households with incomes of $100,000 or more, that percentage jumps to 37 percent, and almost two out of five expect to acquire more real estate very soon.
And what do they anticipate buying — especially now that real estate has morphed into buyer's market mode in many areas? Two of three will be looking at a new primary residence; 26 percent expect to buy land; and 19 percent plan to buy a rental property. Clearly, some expect to buy multiple pieces of property.

Most boomers are not real-estate barons or serial investors, of course, and many admit that they're relatively uncertain about the retirement years. Three-quarters of those surveyed said they do not feel financially prepared to retire. Even among boomers with annual incomes of $100,000 or more, one of every two feel they are not financially ready to retire.

Kenneth R. Harney: kenharney@earthlink.net
Copyright © 2006 The Seattle Times Company

# posted by Katrina Williams @ 12:04 PM

Wednesday, November 01, 2006

Getting Pre-approved starts the buying process

'Pre-approved' gets the buying process started
Steve Tytler Herald columnist

Question: I'm thinking about starting to look for a house. My friends tell me I should get pre-qualified for a mortgage first and the real estate agent says I should get pre-approved for a mortgage first. Is there a difference, and is it really important to get the mortgage part taken care of first before you make an offer to buy a home?
N.J., Bothell

Answer: Many homebuyers are confused by the terms pre-qualification and pre-approval. A pre-qualification is simply a quick conversation with a mortgage loan officer, usually over the telephone, to determine how large a mortgage you can afford based on your current income and debt situation. The loan officer takes the numbers you give him or her and runs them through a calculator to come up with your maximum loan amount based on the current interest rates for various loan programs. That gives you a realistic idea of how much home you can afford.
A pre-qualification is just the first step in the mortgage application process. It is not a guarantee that you will get the loan, it just means that you can qualify for a certain loan amount if your income and credit information checks out as stated. However, that is not always the case. You may have overestimated your actual income, or more commonly, you may have underestimated your monthly debt payments or your credit rating may not be as good as you thought.
The only way to know for sure that you will get the loan amount that you want is to get "pre-approved" for a mortgage. That means filling out the loan application form and providing all the required documentation to support your stated income and financial assets, such as paycheck stubs, bank account statements and investment statements. The mortgage company then checks your credit, verifies your income and financial accounts and puts together a complete loan application file with supporting documentation.

Your loan file is then submitted to an underwriter for approval. Most mortgage companies now use automated computerized underwriting systems that can give you a loan approval within minutes. However, your loan file must eventually be reviewed and approved by a human underwriter before the money is actually released. The underwriter looks over the file to make sure it meets the lender's guidelines for the loan program for which you are applying. If everything is in order, you will receive a credit approval on the loan. That means you have a written loan commitment based on your income and credit history - all you need now is a house to go with it.

In most cases, the automated underwriting findings are sufficient to get you a "pre-approval letter" from a mortgage company or bank that you can use when making an offer on a home. Home sellers and real estate agents love to work with homebuyers who have been pre-approved for a mortgage. They will take you more seriously when you make an offer, and you will have more bargaining power because you can guarantee that your deal will close. It's the next best thing to being an all-cash buyer. Home sales sometimes "flip" when the buyers fail to qualify for a loan and the seller is forced to put the house back on the market. By relieving the sellers of that anxiety in advance, you may be able to drive a tougher bargain on the purchase price because the sellers know you can close quickly.

In some cases, being pre-approved can actually make the difference between buying the house of your dreams or losing out to the competition. Homes in desirable areas that are properly priced are selling fairly quickly these days. In some cases, sellers are receiving multiple offers on homes that have just hit the market. The homebuyers who are pre-approved for a mortgage have an advantage over the buyers who have not yet taken that step.

If you are shopping for a home, fill out a loan application today and get pre-approved. I know that filling out forms isn't a lot of fun, but it is much easier to complete the loan application process while you are calm and relaxed, rather than stressing out over a purchase offer that you just made. There is plenty of pressure involved in negotiating the purchase of a home without adding the stress of applying for a mortgage at the same time.

# posted by Katrina Williams @ 3:46 PM

Second Homes - Age Key Factor in Owning Multiple Poperties

Second-home owners may focus less on primary residences
Harvard study finds age is key factor in owning multiple properties
Thursday, October 26, 2006Inman News

Those who own second homes are more likely to reduce spending on their primary residence relative to their income than those who do not own second homes, according to a study by Harvard University's Joint Center for Housing Studies.

The study uses economic models to measure "income elasticity of demand," which is a gauge of consumer response in spending related to a change in income. For example, a decline in income may lead to a disproportionate rise in the quantity of inferior goods purchased and a disproportionate decline in the quantity of luxury goods purchased. A rise in income elasticity can describe a disproportionately high rise in spending for normal or luxury goods in response to a lesser rise in income. The study provided "compelling evidence that the choice to adjust (housing) consumption by adding a second home rather than by increasing the value of the primary residence must lower demand elasticities for primary homes among second-home owners even more," according to the center's report. This is consistent with the expectations that the resources of second-home owners "have to be divided among more than one home," the report states, rather than concentrated on a single home.

Those homeowners who do not own second homes are more likely to increase the value of their home by trading up to a higher-valued home and/or making improvements to their home, the study suggests. In addition to household income, the age and minority status of the head of household are likely determinants of second-home ownership, according to the report.
Economic models that are based on data from the U.S. Census Bureau's American Housing Survey and the U.S. Federal Reserve Board's Survey of Consumer Finances found that age is the most predominant determinant for vacation-home ownership, the study found. The odds of owning a vacation home are 3.7 times higher among those 45-54 than for those under 35, according to a model based on the American Housing Survey, for example. And based on data from the Survey of Consumer Finances, the odds of owning a vacation home are 11.2 times greater among household heads 55-64 compared to those under 35.

"It seems plain that lifecycle matters a great deal when it comes to the likelihood of owning a second home," the report states. Meanwhile, minority households are less likely to own second homes, based on the data used for the study. Levels of current and permanent income, and wealth not associated with housing, also are positively associated with second-home ownership. And the Survey of Consumer Finances data suggests that the level of education can also be a factor in second-home ownership. Investment savings above $20,000 increase the likelihood of second-home ownership, based on a model of the American Housing Survey Data. "The estimated odds that a college-educated household head would own a vacation home vs. no vacation home are over four times more than that of a household head with less than a high school education," the report states.

Geographic location of homeowner's primary residences doesn't have much bearing on second-home ownership, the study found.***

# posted by Katrina Williams @ 3:43 PM


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