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I’m seeing a perfect storm threatening the real estate industry that I’ve been part of for thirty+ years. It’s not a pretty sight. Like an ominous weather pattern, you can see it swirling and still not be able to do anything about it.

The three elements of this storm: regulations, expectations, and retirement.

Regulations. Over the last few years, even for a qualified prospect, entering into a buying or refinancing deal is like having a second job that lasts anywhere from three to six months. Pulling together the documentation for buying or refinancing has always been a challenge, but it’s worse now. Lenders are demanding more documentation than ever before. At the same time, new regulations are coming faster than most people can keep up with. That usually means even more documentation.

At the same time, the government has imposed rules about appraisals that muck up the process. For instance, mortgage brokers can no longer communicate with appraisers. That increases the amount of back-and-forth communication. The more people that are involved, the more chance for slippage and miscommunication.

Expectations. To buyers, this looks like incompetence. Many of them have expectations that buying will be easy, especially as the economy improves. Having researched as much as they can on the Internet — not always a reliable source of information — they’re ready to shop around for real estate agents and mortgage brokers. So when they’re asked for even more documentation on an ongoing basis, they get frustrated by the pace of the process and frequently walk away.

As a result, the professionals are constantly afraid of losing clients over events they can’t control. That changes the dynamic of the relationship in a negative way, because the agents have to develop five times as many prospects in order to get a single sale. This stretches their workload even more, potentially causing more delays.

Retirement. The final piece of the storm is retirement. The real estate and mortgage professionals who got into the postwar real-estate boom have already retired, and others who came in when the industry was flush in the 1950s and 1960s are increasingly thinking about it. That means the industry faces an increasing loss of professionals with patience and perspective.

What can buyers and investors do? They can ratchet down their expectations. Be more patient and educated about the process. Go ahead and research information on the Internet, but develop an intelligent consensus about data (such as what a house is worth) from multiple sites. Take the time to find a professional whom you know and feel comfortable with. Competence and experience are the best umbrella in a storm as bad as this.

It has been my practice for the last 5+ years to do my best to advise and counsel real estate investors.  As market conditions have changed several times in that span, of course my advice has shifted as well.  My basic philosophy is Buy what you can afford while prices and rates are low, and this continues to be good advice.  After all:

• The number of people who need homes to live in is increasing
• The available supply of homes is finite and not expanding
• According to a US Census Bureau survey, home ownership is down nationwide (see details below)
• People who want to own remains constant
• The majority of buyers are first timers
• Affordability has drastically improved, while financing availability has deteriorated

If this is you, it is the perfect storm:

• You have at least $100,000 or as much as $2.5 million you want invested in real estate immediately
• You have a high tolerance for the risk of buying property across the country you have not and will never see
• You may or may not want to become a landlord, but a looking for fast turn-around and high ROI’s
• Owning 20 - 30 properties short term while they are sold does not frighten you
• You are an active investor who would hire a trusted adviser to oversee a 3-6 month project
• Recycling distressed property to return it to homeowners appeals to you
• Avoiding all complications by not securing financing appeals to you
• A portion of your investment capital can be at work for 3-5 years or longer

US Census Bureau Survey results:

“The homeownership rate declined in 2008 for the fourth straight year according to the Housing Vacancy Survey, conducted by the US Census Bureau in conjunction with the Current Population Survey.

The home ownership rate for 2008 was 67.8%, down from 68.1% in 2007.

By region, home ownership in 2008 was highest in the Midwest at 71.7%, followed by the South (69.9%), the Northeast (64.6%) and the West (63.0%).” - Home Ownership Rates

The major problem with these types of investments has not been investors who meet the milestones listed above, but the companies who secure the property have had 3 major drawbacks:

1. They could not acquire bulk REO or distress property below 60% of current value leaving insufficient margins for wholesalers or investors to implement a profitable exit strategy
2. They have not had a reliable or tested turn-key process that worked to dispose of the purchased property by their investors
3. They have not had a dependable relationship with suppliers to be able to acquire property on an ongoing basis at low discount prices.

Since the buyers are back in force and multiple offers on the lowest priced property is again common, there are now several companies with programs that have solved the 3 performance issues above.  But you won’t find them advertising or taking a high profile in any way.  They prefer to remain connected and committed to their long term, private referral sources, who seem to be able to supply them with all the business they need.

This is the best example “It’s not what you know but who”, and my strong advice is to protect those relationships that give you access to high ROI’s.

As we all look for ways to conserve and reduce spending I’ve noticed some pleasant unexpected results on a sporadic basis.  Some business and service providers seem to be improving and even lowering costs in many ways to accommodate their customers.

Just recently, I went to a new dentist due to a benefits mandate and was amazed at how well I was treated.  I referred several family members who had the same experience and even paid less than expected.  Simply amazing, and quite pleasant to be a valuable asset to their business.

A week ago my daughter had the same exact experience with an Optometrist, strange.

Now you might ask, what in the world does this have to do with an update on appraisers?

Well, buyers are back, all across the country and once again competing for property especially at the low end price ranges - What better time to acquire real estate than when prices are low?  Exactly what would improve housing values and the market?  Why?  With multiple offers come increased prices being offered, which is a desirable result that competition produces if you are a property owner.

Houston, we have a problem - it seems the new appraisal regulations passed a few months ago are creating havoc with everyone connected to real estate transactions whether purchase or re-finance.  In this series I’m going to deal with purchases.  If I seem a little cynical, I am. I warned about this months ago in an article titled “The Fire-wall That Doesn’t Work” so let’s take a look at results from the new regulations now that we have some:

• Costs to the buyer have increased 50%
• Time required to close a transaction has increased
• A layer of bureaucracy has been added which is not accountable to or able to be influenced by any participant of the transaction.
• Terminating or stalling transactions with poor quality or inaccurate appraisals

The problems:

• Appraisers who fear being accused by the end lender of inflating values are keeping values at the low end and not responding to the influx of willing buyers and sellers.
• Appraisers are earning 50% less for their appraisals than they once did and getting less work based on how the national assignment firms (bureaucracy) randomly distribute work.
• Unqualified or inexperienced appraisers will be assigned work equally with experienced professionals for the same fee although the results are dramatically different.
• Based solely on a bad review by an end lender or an assignment company, appraisers, in order to maintain their much needed income, are motivated to keep values lower such that purchase contracts are being sacrificed.

There is no real solution to this just yet because countless millions have been spent by a multitude of organizations setting these regulations and their structures in place.  Unwinding it at this point will of course provide relief if done in a way that serves the consumer, American business, and free enterprise.

One firm has proposed a possible solution and we’ll discuss that next week in part 2.

 I answered the phone and after greetings, Jenny said, I saw your retirement planner and have some questions.  Continue I said.  Well, what you’re doing sounds wonderful and I wish it were for us, but I don’t see it’s relevance.  I asked her to explain with that trite old phrase - A penny for your thoughts:

Well my husband’s hours were cut by 25% and for 14 months, we’ve glared at our life savings being reduced by 39%.  I know that’s exact because we watch it closely.  Years ago we took a seminar that taught us how to budget and plan.  For years now, every quarter we take a weekend away from the kids and our usual life to update our dreams and goals.  We then discuss how we’re going to make them happen.

Six months ago we chose to stop our get-away-weekends, to cut expenses.  Since then planning has stopped.  Why I questioned?  It’s just too depressing getting worse everywhere.  We feel like we’ll be better off if we just don’t look for 2 or 3 quarters.  We’re hoping it will be better by then.

Fear of finances dominates the general public or “The Masses” so intensely that people struggle to avoid it.  The consequence, they continue loosing more and more wealth, without conversations that inspire them to think outside the box.  Perhaps they could change their situation entirely, thereby controlling the very situation that has been controlling them.

We talked, Jenny got re-acquainted with their dreams about a vacation in the summer, the winter, new cars and a new timeshare they planned to buy.  Looking closer at the real numbers and discussing their meaning, they could see they were on track for their dreams and future they wanted, although it now required extending their retirement plans 6 years out.

Over the next two weeks, I noticed in our coaching sessions a sense of hope and inspiration re-appeared, a genuine excitement about being able to live the life they love.  They did it by buying a resale timeshare at fire sale prices and getting a different car.  Also booking 3 vacations instead of two far in advance with two other couples, which reduced the cost and only required a deposit.

The time value of money compounded over 19 years, in their case, made a big difference in their planning for the future.  The lessons here: Manage your fear & look ahead, take decisive action toward your goals, and always be willing to pay a penny for a thought that just might give you your world!

A common thread in todays’ world is how busy we all seem to be.  As you grind your teeth, sweat that next deadline and do your best to get through email and return calls, do you wonder if it’s possible to think about abundance and joy, let alone have that experience?

Occasionally you meet one of those rare people who appears to have life figured out AND is enjoying it - Amazing!  How do they do that having some of the same stuff to deal with that you do?

Just for a moment, with nothing else to pay attention to, see if you can imagine the experience of having these 7 habits fully developed in your life:

1. Build every day with the raw materials of your values and the vision of the future you want to live.  For this habit to be developed, DISCIPLINE is the practice.
2. Live life moment by moment.  PLANNING is a habit to master since the next moment is upon us.  Choose how to use it, or let it pass and deal with the next… oops, that one just went by.
3. A part of abundance is wealth.  What you have and need to live now, and what you will need in order to accomplish what you are going for.  The skill for this is FINANCIAL GOALS, a practice that will get you to and through your retirement years.
4. Sweep away tired uninspiring goals and replace them with an inspiring life purpose, from which an endless supply of relevant goals will emerge.  The practice to develop here is REGULAR REVIEWS.
5. Fight fear with action and get yourself an accountability partner who will hold you to account to accomplish your desires.  INTEGRITY is the practice of saying what you will do, by when, then doing just that.
6. Nourish yourself and others in small ways every day with simple things; like cleaning up your vocabulary and never complaining to anyone who cannot make a positive impact on the object of your complaint.  How many of us “Tell The Truth” in a negative way about our financial situation?  This is complaining and only ensures that things stay as they are, or get worse.  ANTICIPATION or POSITIVE EXPECTATION are skills well worth the time and practice to develop.
7. Finally, CELEBRATE everything you can.  There is much to celebrate if you look for it.  If you have trouble with this one, start an appreciation journal and commit yourself to write in it daily.

Live life by design, think about your credit, your budget, the impact of financing, saving, and investments on your long term planning.  Biggest of all, is your plan abundant enough to live a joyous life?

Try this     (click to follow) new tool to build a great plan in a short session.

“3 Insider secrets to help you predict where interest rates will be headed”

While this seems like a promising headline, for the last few weeks the mortgage backed securities market and the stock market have resumed their previous predictable pattern of behavior which is good news, or is it?

For years those in the mortgage lending industry were able to with relative confidence learn to predict where interest rates were headed by what was happening, in general, in the stock market and the bond or treasury market.  I don’t at all mean to suggest that anyone could accurately determine what rates would be but those with experience would “study the tea leaves” and make a relatively good prediction and hit it more times than not.

1 - When bond yields are up mortgage interest rates will move down.  Even though these two are not related but are distant cousins, it was a pretty reliable assumption.

2 - If the stock market is doing well the bond market tends to react in the opposite direction.  This used to be reliable because if investors liked putting their money in equities (stock) they would usually take it out of securities (bonds) to do that.

3 - Talk about the threat of inflation and the bond market would sell off and rates would rise within a few days and stay up in a protective mode until the conversation changed or inflationary fears subsided.

For the past year or so, these have not been dependable measures to predict where interest rates are headed due to the overall lack of enthusiasm and trepidation about the financial markets.  Interest rate behavior was pressured down, they stayed there & nothing negative about the market would have much of an effect on rates.  It has been a hay-day of low, good rates so to speak. . .

My friend Ray Avanzino presents a very straight up picture of current market conditions, check out his work.  Bottom line, the fear of inflation surrounding the increase in federal debt is increasing and therefore the bond market has sold off more dramatically than ever in the past.  This usually means higher rates and indeed they have gone up quite a bit in the last 2 weeks.  However, higher rates threaten our fragile recovery so now the pendulum is poised to swing the other direction so as not to slow down or stall what little recovery we might have going.

The lending industry is doing all it can to get clients locked and closed before major increases threaten already weak business.  So if you are in line, hopefully you have a skilled agent who can see these trends developing and will tell you when to achieve your home run for this cycle.

As usual, please comment, don’t be afraid, you’ve got a couple of minutes, just do it!

  If you are a gambler, today’s increase in 10 year treasury yields and the subsequent predictable increased interest rates may be just what the doctor ordered.  Because today’s increase is now the steepest ever since the last record set on August 13, 2003, gamblers are “in the zone” with heavy speculation about whether future interest rates will come back to their low levels we’ve enjoyed since December 10, 2008, or continue to rise.

If you are not a gambler and one of the many currently in or considering getting in a mortgage lending transaction, this is one of those times where market activity may change your plans.

In An Unfair Advantage I discuss several ways that mortgage lenders lock interest rates.  Discussing this today is a bit like closing the barn door after the horses have gotten out but never-the-less an effective conversation.  My strong recommendation is read this and call your lender to have them tell you if you are locked or not and if you are, do they have enough control to close your loan before your “better than market rate” will expire:

Locking in the rate

Not an exact science, there are a lot of ways you could lock in your loan interest rate.  Here are some useful guidelines:

Rates are locked for different periods of time.  The specific period of time has mostly to do with the time required to close the transaction - they could be 15, 30, 45, 60, 120 days or more.  Each of these periods carry additional costs as they increase.  When locked, over 90% of lenders will not allow any changes to the locked rates up or down, within the lock period.  If a transaction extends beyond the lock period, the borrower will likely be charged to extend the rate, 1 week at a time, regardless of who caused the delay.  Here is a list of some common practices among lenders for locking the rate:

• Upon loan application when the loan comes in to the lender
• At the request of the borrower any time during the process
• The lender or borrower may want to time the locking of their interest rate with market performance. While not advised, this is a practice that should be left to highly experienced professionals who even then will be correct 75% of the time instead of 50/50 like everyone else.
• At final loan approval since the closing at this point is guaranteed and the cost to lock is the lowest.

If you have not locked your rate at this point or you are preparing to enter a transaction, discuss the impact of today’s market activity on your file with your lender and if it changes your qualifications.  Even though this may not be an issue for you since rates will not likely rise more than .25 - .375%, it is still a good conversation to have for you and your lender.

  As a real estate investor you are different than the previous version recently retired with these improvements:

1. You have money
2. You are a keen observer of value, growth, and cash flow

For those of you looking for the ultimate value, it is not foreign to you to do what the herd is not yet doing because when they are, it’s too late.  John Bell, an entrepreneur from New Jersey, in his commitment to help reduce debt for his clients, has researched the West Florida area and gives us some compelling results.  Since there has been little in the news, good or bad, about Florida, this is worth your attention.  Thanks John!

Florida’s West Coast Looking better!
Last year the Cape Coral area of Florida had the highest foreclosure rate in the country but now Real Estate climate in the Cape Coral, Florida area and on the Gulf Coast of Florida are showing signs of improvement: First-time home-owners are suddenly entering bidding wars with real estate speculators from as far away as Spain and Germany. Sales in February outpaced those at the peak of the boom, with some houses getting more than 50 offers and selling above their asking price

Banks in these markets are dumping foreclosed properties, attracting cash-rich speculators who are looking for cut-rate bargains and first-time buyers are finally rushing in, lured not only by plunging prices but also government incentives like ultra low interest rates and hefty $8,000 tax credits.   

This doesn’t mean the national bust is over -  but prices have fallen so much in some areas that shoppers are getting interested again, improving the balance between buyers and sellers. It also does not mean prices will surge all too quickly but heavy buying should at least begin to put a floor under prices. “Are we at the bottom?” asks Christopher Thornberg, an economist with Beacon Economics. “We are getting close and just as Florida, and Las Vegas led the nation into the housing bust, those areas could provide the template for a national recovery. . .

Local Resources:
Sunbelt Realty, property listings: http://www.larryguinnc21.com/      
Cape Coral Florida’s Real Estate Guide: http://www.bestcapecoralrealty.com/
Cape Coral Chamber of Commerce: http://www.capecoralchamber.com/

To contact John Bell directly send email to jdbell@optonline.net for a dose of personalized care and concern.

  Your Mortgage Loan is Going to Reset

Today consumers are concerned about their mortgages and what the future holds, more specifically, what to do with resetting rates and when.  Low interest rates in the mid 4’s to low 5’s, excellent rates by historical standards, have people scrambling to refinance loans with adjustable terms to fixed rate & term product.  Is that really necessary? 

John and Georgia owe $376,000 on their Bay Area home.  This loan, like many issued in the 2000 - 2004 mortgage and real estate boom period, was called a hybrid, containing both fixed rate and adjustable portions.  They have an interest only payment option lasting until 2013, and the monthly payment is $1,763.

Current Loan

The fixed rate portion is about to reset to a 1 year adjustable in August.  The terms of this change are index + margin is their new rate.  The index is the 1 year Treasury Security or CMT, the lifetime margin for the loan is 2.75%.

The clients, worried about John’s work situation are frantically looking for what to do next sampling the marketplace for appealing options.  The problem is everyone they speak to is on the sell for a solution in the form of a new mortgage that will be the:

• Lowest rate
• Lowest cost
• Best loan available
• Lowest monthly payment
• Perfect solution to solve their problems

Call any lender or mortgage broker and you’ll see, this list will go on and on with all the emotional appeal crafted to get you a better loan. 

Suppose John & Georgia settle on the new mortgage in the chart below.  They pay .25 points (1/4 of 1% of their new loan amount), include all costs and expenses totaling about $3,900. into their new loan so they don’t have to write a check at closing, and they get a new 30 year fixed rate loan.  Both the loan balance and monthly payment will be higher.

• They have increased their mortgage and reduced their home equity by $3,900.
• They have increased their monthly payments by $218.75.
• Was this the best option for them?

When I asked this question they said well, we’re not sure about John’s job and we feel better knowing our loan isn’t going to change to something we don’t understand, and besides things are still getting worse aren’t they?

In my next post on Monday I’ll show you the review we did and what their options were. 

Study the data on both the old and new loan and test your knowledge and conclusion.  Then on Monday find out if you would have made the right choice for yourself.

We will also have a special offer lasting 48 hours where you could win a free tri-merge credit report complete with a complimentary consultation and analysis.

See you at Do You Really Need to Refinance - Part 2

I ask myself all the time, am I making the right choice?  We could debate right or wrong all day on different levels but the point is I make choices and so do you.  Losing 25-50% of your long term savings is a problem.  Just this week we’ve heard about folks putting off retirement for 5 - 7 years or who need to subsidize retirement income, or who may not retire at all and then around age 90, it’s over!  It’s just not fair - - Says who?

Who made every single choice in your life, in my life?  You did, I did, and then life goes the way it does and we see the results of those choices.  Why is it then we begin a process of disempowering ourselves and forsaking any learning that we might benefit from by looking around for somebody or something to blame for how it turned out?  Oh but when it goes well & we win, guess who gets the credit. . .

Like children learning to walk who do not give up when they fall, we keep living and making choices, thousands of them each day.  The question is who or what is driving them?

The simple answer is:  every thought, feeling, belief, or memory we’ve had, combined to form your past, your history.  So is our history choosing for us?  Do we simply look for what we already tried that worked or avoid what didn’t for our next choice?  Are there any other options, what about the present or better yet the future, how do we get there?

Moving forward will require great courage and very different thinking to form new habits if we’re to get valuable lessons from history with which to move forward. We are about to experience a massive economic recovery.  It may already be underway.  To be positioned to gain from it, here are some ideas to work with if we can give up blaming for just a bit:

• Update your plans, dreams, and goals for what you most want in your life.
• Translate them into the monetary equivalent. What income will you need, what will that new car cost & when & how many years before college planning begins and what will the cost be?
• Do research to determine what choices you need to make now and in the near term. Base them on what’s current, strengths and weaknesses, and what’s anticipated. Create your own criteria for choosing. Bring in experts when you need them & listen to them if they are more skilled than you, which might be why you brought them in.
• Avoid making choices or decisions in extreme emotional states which would obviously be emotional choices. Make your choices based on carefully considered criteria which have the best odds of producing a win.
• Finally, we’re back to where we began. Life goes the way it does, you get what you get. Be responsible for the choices you made, take the results and move on and make more!

See where this began Click here