FHA extends suspension of ‘anti-flipping’ rule for another year 
 
The rule was intended to prevent speculators from defrauding the government, but it also stifled the purchase and renovation of foreclosed homes by legitimate investors.
For years the federal government prohibited the use of Federal Housing Administration mortgage financing by buyers purchasing homes from sellers who had owned the property for less than 90 days. The idea was to prevent speculators from defrauding the government through quick flips of houses — often involving straw buyers and corrupt appraisers — at wildly inflated prices.
One side effect of that policy had been to stifle purchase-and-renovate projects by legitimate, small-scale investors who buy houses after foreclosure or loan defaults and then resell them in substantially improved condition. In many parts of the country, first-time and moderate-income buyers often sought to buy these fixed-up houses using FHA-insured mortgages with 3.5% down payments, but were prevented from doing so by the “anti-flipping” rule.
This left large numbers of foreclosed, vacant houses sitting unsold and deteriorating, with negative effects on the values of neighboring properties.
Last January, FHA Commissioner David H. Stevens announced a one-year suspension of that rule, permitting qualified buyers to obtain FHA mortgages on properties that were acquired by rehabbers less than 90 days before. The plan, set to expire at the end of this month, came with safeguards for purchasers, including inspections and multiple appraisals in some cases to document the amounts spent by investors on the improvements.
Vicki Bott, deputy assistant secretary for single-family housing at the FHA, confirmed in an interview that the agency expects to continue the policy for another year. Not only have first-time buyers responded overwhelmingly to the opportunity to buy “turnkey” renovated homes with low down payments, she said, but they have performed well on their mortgage obligations.
“Obviously we have concerns about flipping in general,” Bott said, but the FHA has seen none of the fraud problems, defaults and re-foreclosures that cost the agency millions in insurance payouts in earlier years.
Investor Paul Wylie, who with a group of partners and contractors specializes in acquiring, renovating and reselling foreclosed and distressed houses in the Los Angeles area, says the government’s policy “has been a very positive approach” because “it recognizes the role that [private investors] can play in helping the housing market get back on its feet.”
In the L.A. market, Wylie said, FHA financing accounts for 40% of all home purchases and 60% of purchases in predominantly Latino and African American communities.
Buying foreclosed houses “comes with a lot of risk factors,” Wylie said. “There’s no title insurance. We don’t have a good idea of the extent of the defects” inside properties that have been sitting vacant or vandalized for months. Some houses come with delinquent property taxes, which Wylie’s group typically must pay.
Then again, the profit opportunities can be significant as well. Most of the Wylie group’s houses sell for more than 20% higher prices than Wylie paid at acquisition — a quick turnaround gain that potentially works for buyers, sellers, neighborhoods and, yes, the FHA itself.
 
In the Moment, For the Moment

Christian Yepez, Syndicator
www.InvestorsNetworking.com

NEW: The LLC-IRA for Real Estate Investing

By now I am sure you’ve heard that it is legal, permissible, and profitable to invest in real estate using your self-directed IRA, SEP, or Roth IRA. If you’ve been using this technique, you know the drawbacks: delays in funding, fees from your custodian, potential lawsuits against your IRA.

Well, there’s a solution…the LLC-IRA.

Instead of investing directly from your IRA, you set up a single-member LLC that is owned by your IRA. Your IRA account is the MEMBER of the LLC. The LLC is a legal entity that has powers and protections that are not possessed by any individual or by any regular IRA.

The combination of the self-directed IRA custodian and the LLC produces great results. This is an entirely new type of LLC, not your run-of-the-mill LLC you may have done before. It generally requires an attorney to draft the operating agreement and provide an opinion letter to your IRA custodian. If the LLC operating agreement is improperly drafted, the entire LLC-IRA may be disqualified and taxed.

Lawsuit protection of your IRA account

A single-member LLC (Limited Liability Company) is a business entity that gives the liability protection of a corporation but is “disregarded” (ignored) for federal income tax purposes. It is a separate legal entity under state law, so creditors of your LLC (as in the case of a tenant injured on the property) cannot go after the member (your IRA account) or you (the Manager).

“Checkbook” control

As manager of your LLC-IRA, you can write checks as you need to for purchasing property, paying property expenses, or loaning money. If you want to do a deal in a hurry, you can run down to your bank and get a wire or certified funds the SAME DAY, as in the case of a foreclosure auction.

Keep in mind that any transaction you can’t do in your IRA account, you are also prohibited from doing in your LLC-IRA. You should not attempt any transaction in your LLC-IRA without competent tax and legal advice.

Steps to form your LLC-IRA

First, you need to transfer your existing IRA to a custodian that allows complete self-direction of your account. Big firms like Fidelity and Schwab generally don’t allow you to direct your account into real estate investments.

Second, you need to hire a professional to create the LLC. Third, you “fund” the LLC by directing the money from your IRA custodian to the LLC’s bank account. Fourth, you start investing in your LLC-IRA.

Custodial fees are much lower because the IRA only has one asset, the LLC.

Is this all legal?

The legality of an IRA owning an LLC is based on the case Swanson vs. The Commissioner in 1996. In Swanson, the court ruled in favor of the taxpayer using a corporation owned by his IRA, where he was the president. The LLC, by implication should be the same.

Should you have any questions about the legality of your LLC-IRA, speak with a qualified attorney to advise you through the process.

Dont Forget, I got deals and great articles for you here on my site
www.InvestorsNetworking.com

December 2010 Real-Time Housing Report

• The Altos 10-City Composite is now at $456,454, off 0.45% from last month.
• 23 of the 26 major markets tracked by Altos showed price decreases, with the steepest declines seen in Washington, DC (down 3.41%), San Diego (down 3.07%), and Salt Lake City (down 2.63%), respectively.
• The December housing market begins with a continuation of the seasonal price and inventory declines, with asking prices down by 0.45% this month and active inventory down by 3.16%.
• Watch the third week of January before the first inklings of seasonal demand up-tick become visible.

Download a copy of this month’s report here.  (Yep – it’s free. Registration required.)

Top 5 Mistakes of Beginning Commercial Real Estate Investors

Agree or disagree? Leave a comment below!

(and look out for a cool CRE giveaway in a few days…)

We’ve all done it. Anyone who invests in real estate is bound to make a clunker deal sooner or later. I’ve been in this business for over 25 years and have made plenty of mistakes, and I am always reminded that experience is what you get right after you needed it.

The popularity of commercial real estate has exploded in the last few years, and the media is full of war stories from new investors who find themselves in deals with problems.

In almost every case the cause is traceable to a lack of knowledge about a few simple precepts that form the ground rules of successful commercial investments. These are the basic practices that when used correctly will eliminate the most common causes of a bad deal.

My top 5 list of rookie mistakes:

1. Ignoring local market conditions

There are two levels of due diligence required to evaluate a real estate investment–the market and the property. And of the two, local market conditions trump everything else.

A great property in a bad market can be a big loser. A poor property in a great market can be a gold mine. How do you know the difference?

Every market is different, and a deal technique or property type that is profitable in one market it does not mean the same holds true anywhere else.

Analyzing the demographic trends of population growth, income, and employment in the local market will tell you where opportunity lies, or not. It will also show which property types are in demand, or oversupply. Those conditions will make or break your investment.

Investing in an area with declining demographic trends is destined for trouble. So learn your market. Then listen as it tells you how, when, and where to invest.

2. Inadequate property due diligence

The second level of due diligence is the property condition, including physical items such as building systems, environmental matters and structural components. Just as important are the intangible items, such as title, survey, and zoning and land-use regulations.

Knowledge of contract law, insurance, finance, accounting, and tax law is also critical to doing things right at the beginning to insure success at the end.

If you’ve never done it before, this is not a DIY project. The money you think you’ll save by doing it yourself can cost twice as much to fix, and may jeopardize the entire investment.

Red Adair, the famous oil and gas field firefighter, said, “If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”

Admit what you don’t know. Approach the property like an open book test. If you don’t know the answer to a question, find an expert who does know to give it to you.

Get accurate estimates from professionals of what it will cost to fix what is wrong. The time spent inspecting the components is minimal and can save thousands of dollars in unexpected repairs.

3. Botching the math

This is not rocket science, but real estate is a numbers game. Value is dependent on net operating income: gross revenue minus operating expenses.

That’s why it is so important to get the real operating numbers, not a projection of potential gross income and estimated expenses.

Confirm and verify every element of income and expense. Value the property based only on present income, not projected income you have to produce.

Your profit is dependent on net income. Net income is the net operating income minus debt service. If you’ve overestimated revenue, underestimated expense, or have too much debt service, your profit will suffer or turn into a loss.

Understand that risk increases with every assumption made. Do not assume you can save expenses by cutting corners or that you can raise rents the day after you take possession.

Anyone who has ever prepared a projection of operations has realized that by tweaking the assumptions, the bottom line can be manipulated into whatever will make the deal work.

The problem comes when it’s time to make the numbers happen. It’s real cash [...] and when the rents don’t go up or the expenses don’t come down as much as the projection called for, you take the hit.

You might tweak the numbers to make it work on paper, but paper won’t pay the bills, and hope is not a plan.

4. Over-leverage

Borrowing too much money in this business is fatal. Highly leveraged deals do happen, but unless it’s backed up by a solid plan with sufficient capital, it can be disastrous.

Using 100% financing for entry level deals is like believing gravity doesn’t exist as you jump off a building. You can argue all you want, but you’re going to hit the ground, the only question is how hard.

The proper use of leverage is a function of deal structure and investment strategy. Every investment property should be evaluated in light of the break-even ratio.

The break-even ratio is equal to the Operating Expenses plus the Debt Service, divided by the Gross Potential Income. [(OpEx + DS)/ GPI = BE]. When break-even exceeds 80%, the structure depends on perfection, and that’s dangerous territory.

5. Failure to have multiple exit strategies

An investment plan incorporates all of the due diligence findings and outlines all the possible outcomes of the investment, best case to worst case.

Ask yourself why you think you can do a better job running this property than the seller did. If you can’t answer that with specifics, you won’t do better, and probably not as well.

Your plan should answer the questions of how the property will be managed; what improvements are needed and their cost; how much money might be made (or lost); how long it will take; how to get out if things go wrong; and how to access the profits when it goes right.

The answers will reveal a realistic plan to maximize value in the shortest possible time with the least possible downside. I rarely have less than three exit strategies, and usually a half dozen or more. I’ve learned that if I don’t have a plan to get my money out of a deal, I will soon be out of money.

Learn from those who have paid the price

I just read an article on Wall Street Journal Online about a young Colorado investor who made almost every mistake mentioned above. In 2005 he paid $269,000 for a four-plex, used 100% financing in a market dependent on the presence of military personnel in the middle of a war with extended deployments.

He had no management experience and didn’t screen new tenants, who turned into evictions. He planned (hoped?) to hold the property for cash flow, but over-leverage and inexperience produced average cash flow of only $100 per month.

Now he wants to move to another city and put the property on the market for $285,000. With no takers he’s reduced the price to $265,000, offering a 3% commission, but not using a listing broker because he thinks he can’t afford it. This is not an isolated case. The dangers of these errors are real and painful.

Roy Williams, the Wizard of Ads® from Buda, Texas said, “Are you smart or are you wise? A smart person makes a mistake, learns from it, and never makes that mistake again. A wise person finds a smart person, learns from his mistakes and never makes them in the first place.”

This article first appeared here.

For commercial deals or Apartments information, dont forget to keep coming to my site.. www.investorsnetworking.com

Christian Yepez, Syndicator, Investor

According to current data published by Federal Reserve Bank of New York, 2.7% of mortgage balances got converted to delinquency during the 3rd quarter of this year. This was 0.1% more than the 2nd quarter. Though the increase has been termed slight by Federal Reserve Bank officials, the trend is an indication of decrease in new delinquencies.

New York Federal Reserve Bank stated that though in 2009 a similar pattern was observed in the 3rd quarter, a close monitoring is being done this year in view of the tight economic situation. According to New York Fed Bank reports, nearly 457,000 people received foreclosure notice in the 3rd quarter of this year. As compared to the previous quarter this is a decrease of 5.5%, and 6.4% as compared to corresponding period of previous year.

This steady decline is caused by consumers trimming their debts continually for the last seven quarters. The declining phase which reached its lowest point in 2008 third quarter has recovered slightly with almost US $1 trillion being scraped from consumer debts. From Fed Bank reports it is evident that non-mortgage debts since 2008 have fallen for the first time during this years 3rd quarter.

Effects of charge-offs and defaults have been excluded form this calculation. Net mortgage debt payments that started in 2008 and ended in 2009 have amounted to US $140 billion. From the figures it could be said that consumers have made conscious efforts in reducing their liabilities.

Research and Statistics Group senior economist, Donghoon Lee has remarked that consumer debts have declined and only a small part is accountable for charge-offs and defaults. Individuals have paid off their liabilities and borrowed less than before. This behavioral change could be either because of changing saving habits or stringent credit offerings or both.

As it is, this seems a healthy way of reducing debt burden, though analysts are skeptical about it. According to them shrinking debt balance is an indication of low consumer spending, which has a deterrent impact on the economy.

As per current data debt repayments by consumers have reduced consumption expenditure by US $150 billion till the end of 2009.

________________

Now, regarding you.. What are you doing now in Real Estate?

reply or comment..

Christian Yepez, Syndicator and Investor

www.investorsnetworking.com

Have you been reading the news?  The apartment sector is outperforming the economy. This should not surprise you. With a record number of folks losing their homes to foreclosure, there is increased demand on rental living. The Apartment market is getting better and better every day. 

“U.S. West Apartment Rents Increase as Foreclosures Boost Demand”

(Bloomberg) Apartment rents rose across the U.S. West and South for the third straight quarter as record foreclosures boosted demand for rental housing, RealFacts said. Apartment rents rose fastest in the Denver area, with rates increasing 2.4 percent from the second quarter to $883 a month, followed by the Austin, Texas, region, with a 2.3 gain to $837 a month, RealFacts said. In the Atlanta area, rents rose 2.2 percent to $834, and in the San Jose, California, region they increased 1.9 percent to $1,587.

“We’re getting to be much more of a culture that puts a premium on rental housing,” Sarah Bridge, owner of RealFacts, said in an interview. “People are disillusioned with the housing market. They don’t want to spend their money that way if they’re going to be foreclosed on.”

“Apartment Market, Rents Rebound”

(Wall Street Journal) The nation’s apartment market strengthened in the third quarter, with national vacancies seeing one of the sharpest declines on record, according to new data released Wednesday by Reis Inc. Robust demand allowed landlords to modestly increase rents for the third quarter in a row. That is a reversal from the freebies and discounts desperate owners coughed up during the downturn to retain and attract tenants.

“Recovery in the apartment rental sector appears to be firmly rooted,” said Victor Calanog, director of research for Reis, a New York-based research firm. “Despite lackluster economic growth and continuing uncertainty in the labor markets, households appear to be returning in droves to the rental market and signing leases.”

Do you seek bigger profits than single family foreclosures and a quicker plan to reach your financial independence goals? As America downsizes, have you looked for ways to capitalize on the increased demand of apartment living? Have you tried to tap into the foreclosure apartment investing business but did not know where to start?

Remember, I am always looking for Apartments or Commercial opportunities. I syndicate deals,  once I find something, I will let you know fast. Okay?

In the Moment, For the Moment,

Christian Yepez, Investor/Syndicator

www.investorsnetworking.com

Lenders Slow Foreclosures By 5% in 2010, Boosting Shadow Inventory: RealtyTrac

Foreclosure filings dropped 5% over the first half of 2010 as lenders continue to delay proceedings in lieu of short sale and loan modification efforts, according to RealtyTrac, an online foreclosure marketplace.

More than 1.6m homes received at least one filing, including default notices, auction sale notices and bank repossessions over the last six months, according to the report. That translates to one in 78 homes. Foreclosure filings remain 8% above the amount issued in the first half of last year.

James Saccacio, CEO of RealtyTrac, said at the current pace, more than 3m properties will receive a foreclosure filing by the end of the year, and lenders will repossess more than 1m of them. According to a report from the Toronto-based Capital Economics, the weight of the shadow inventory may contribute to a double dip in the housing market. The report found that for every home currently on the market, two homes are waiting to be sold.

“The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market,” Saccacio said.

Foreclosure filings decreased 3% in June after another 3% drop in April. It’s the third straight month of declines. Foreclosure filings were down 7% from June 2009. Despite the recent downward swing, June marked the 16th straight month of more than 300,000 filings.

For the second quarter of 2010, foreclosures dropped 4% from Q110 and remained 1% above Q209. As default and auction notices fell, REOs increased 5% from the last quarter and 38% from Q209. It’s the most REOs measured in a quarter since RealtyTrac began publishing the reports in January 2005.

“The second quarter was a tale of two trends,” Saccacio said. “The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.”

Nevada continued to hold the highest foreclosure rate in the country. Nearly 6% of all Nevada properties, which equals one in 17 homes, received at least one filing in the first half of 2010.

Arizona holds the second highest. There, 3.36% of its units received a filing, equaling one in 30 homes. Florida was third with 3.15%.

More than 340,000 properties in California received a filing in the first half of 2010, the state holds the highest foreclosure volume. Florida was second with more than 277,000 properties.

Remember, this is the time to be in the Real Estate Game, if you are confused about how to get started in real estate, contact me through this website .. www.investorsnetworking.com

In the Moment, For the Moment,
Christian Yepez, Investor, Syndicator

Investing in a Real Estate Syndicate

The syndication process is simply the aggregation of capital from a group of investors to acquire property.

Real estate syndications are seeing new popularity as real estate is increasingly viewed as a fourth asset class in addition to stocks, bonds and cash.

Real estate investment trust (REITs), many of which have dividend returns of 6 percent or more, are an attractive way to invest in real estate but their publicly traded shares are subject to a significant degree of price volatility that many investors seek to avoid. By contrast, shares in a private syndicate, typically a real estate limited partnership (RELP) or limited liability company (LLC), are not priced to market on a daily basis and in addition offer the possibility of higher returns than publicly managed REITs. Finally, private real estate syndications offer some tax savings unavailable when investing in a public company.

Advantages of Real Estate Syndication

While investing in a real estate syndicate has certain disadvantages as compared to direct ownership of real estate, syndicates do offer significant benefits. These include the following:

• Access to real estate skills. The most obvious advantage of a syndicate is that the knowledge and skills of a real estate professional are available to nonprofessional investors. Real estate investment is a far more complicated process than might appear at first, requiring skills in determining real estate values, negotiating purchase agreements, financing a purchase, negotiating leases and managing the property.
• Increased savings. By pooling the funds of a number of investors, even a small real estate syndicate can achieve cost savings as compared to an individual investor. A well-capitalized syndicate can make a substantial down payment on one or more properties while still retaining necessary cash reserves. In addition, other things being equal, larger properties tend to be more cost-efficient than smaller ones, since many expenses are lower on a per unit or square foot basis.
• Diversification. A major advantage of syndication is that it enables an individual investor with limited funds to diversify among a number of different properties. Diversification may well be the most important way to protect against significant losses in real estate.
• Tailor-Made Investment Positions. Finally, a syndicate can be structured to offer a variety of “investment positions” that differ with respect to priority of return, risk of loss and tax benefits. Thus, an investor can choose the balance of risk and return that best suits their wishes.
• Cash Reserves. The need for cash reserves is often overlooked when inexperienced investors buy real estate. Syndication can assure that sufficient capital is available to give the investment staying power, the ability to withstand economic downturns or temporary shortfalls.

Beginning the Syndication Process

A major consideration to be addressed at the beginning of the planning process is the number of investors the sponsor intends to solicit. In most cases, a syndicate will consist of 10 to 50 investors, often known personally by the sponsor, who may be a real estate broker, attorney, accountant, or someone fully involved in real estate operations. In these cases, no elaborate marketing plan needs to be implemented. In addition, federal securities laws may not apply if the offering is within a single state or otherwise meets the requirements for an exemption. State securities laws may or may not be applicable. Professional counsel should be sought to assure compliance.

Multi-Class Syndications

In a typical real estate syndicate, the investors constitute a single class, each receiving a pro-rated ownership interest in the syndicate. In some cases, however, in order to broaden the market for syndicate shares, the sponsor may create a multi-class syndicate or paired syndicates. This permits the creation of different classes of investors, each class entitled to a different type of return, just as corporate investors can choose among bonds, common stock and preferred stock.

Three different approaches to the multi-class syndicate are: (1) different classes of interests within the same syndicate; (2) fee/leasehold split in separate syndicates; and (3) equity/loan split in separate syndicates.

In the fee/leasehold approach, separate legal interests in the property are created – fee ownership and a long-term leasehold. Two syndicates are formed. The syndicate owning the fee interest in income property will be attractive to investors wishing to receive a secure cash flow in the form of rent from the leasehold syndicate. The syndicate owning the leasehold then operates the property directly or enters into a net lease with a high-credit tenant. Since no land investment is required, higher returns can be generated but more risk is assumed since the ground rent must be paid in all events.

In the equity/loan approach, instead of a division of ownership between two syndicates, one syndicate (for conservative investors) makes a mortgage loan to a second syndicate (of the equity investors) that owns the property. The lending syndicate receives interest on its loan, which can include some form of participation in future income, while the equity syndicate keeps the balance of income from the property and possible amortization payments as well.

Multi-class syndication is complex and must be expertly handled with regard to economic, legal and tax consequences. When two syndicates are created, as discussed above, the sponsors must be sure that applicable federal or state exemptions will not be defeated because the offerings are deemed to be integrated

In summary, syndication of real estate is a profitable business for the syndicator, however, you need to know what and with whom you are investing with. If you are reading this post, it means that you know me by emails or in person. Remember, i am still flipping apartments and houses, please go to my site of if you are here already, thanks.  www.InvestorsNetworking.com

Fannie mae takes a second look at REOs

HAFA encourages short sales to avoid foreclosure

Short sales give distressed homeowners an exit that doesn’t lead through credit-damaging foreclosure and saves bank’s money compared with taking and selling houses with failed mortgages. That should make them a preferred option. But short sales take longer, often two months longer, and can be nearly impossible if other lenders have liens on the house. So at the urging of the National Association of Realtors, the U.S. Treasury Department came up with a new program to encourage short sales. Home Affordable Foreclosures Alternatives, or HAFA, went into effect April 5, although banks and real estate agents will need time to take full advantage of its provisions. HAFA encourages short sales chiefly by, (a) holding parties to deadlines for various parts of the process (b) providing financial incentives, including $3,000 to help the homeowner relocate; $1,500 for servicers to cover their extra costs; and as much as $2,000 for mortgage security investors who allow as much as $6,0
 00 of sale proceeds to go to other lien holders (c) allowing the current mortgage holders to get pre-approved short-sale terms before listing the property for sale (d) requiring that homeowners be fully released from future liability for the first mortgage debt.

Under HAFA, banks must decide within 10 business days whether to approve or deny a requested short sale under the program. Banks already have an inventory of 1.1 million foreclosed houses, recent estimates by LPS Applied Analytics of Jacksonville, Fla., show. Many more will be heading for a short sale or foreclosure. The Mortgage Bankers Association said more than 9 percent of homeowners were behind at least one payment on their mortgages in the fourth quarter. LPS figures 4.8 million are delinquent or already in the start of the foreclosure process. The HAFA program can’t reach many of those houses. Lenders participating in the federal government’s effort to encourage mortgage relief for distressed homeowners — Home Affordable Modification Program — are required to participate in HAFA as well.

Strength in Recovery? Not Yet.

U.S. companies are plowing money back into their businesses at a rate that demonstrates growing confidence in the economy’s recovery, but still leaves questions about its strength. The Commerce Department reported Friday that private investment in equipment and software, everything from machine tools to word-processing programs, rose at a robust annualized rate of 13.4% in the first quarter of 2010, adjusted for inflation. Business investment overall, including money spent on warehouses and office buildings, grew at an inflation-adjusted annualized rate of 4.1%, dragged down by the persistent slump in commercial real estate. The increased spending on equipment and software encouraged hopes that businesses will help lead the economic recovery, generating enough investment and jobs to sustain a recent resurgence in consumer spending.

So far, though, it is falling well short of the pace needed to drive the kind of sharp, “V-shaped” recovery that has followed deep recessions in the past. Together with rising exports, the business investment “is enough to generate a sustainable recovery, but not enough to generate a V,” said Nigel Gault, chief U.S. economist at consultancy IHS Global Insight. In the first four quarters after the harsh recession of 1981-82, inflation-adjusted investment in equipment and software rocketed back at an average annualized rate of 21%, helping to drive nearly 8% growth in the broader economy. Most business surveys show optimism rising and many companies planning to boost capital expenditures further in coming months. But disparities remain. Business investment still has a long way to go to reach normal levels. In the first quarter of 2010, net private investment—including capital spending on everything from houses to assembly lines, minus depreciation—stood at 1.6% of economic
 output, well below the 20-year average of 5.4%. Meanwhile, the smaller firms that tend to account for an outsize share of job growth are facing serious obstacles, as banks shy away from providing credit.

Diana Olick – Bye Bye Home Buyer Tax Credit

“It was the last day of the home buyer tax credit…for the second time.  Of course given all the hype on the home builder web sites, you’d think this was the last day of the housing market as we know it.  And was it working? Well, hard to say.  One guy we spoke to in suburban Maryland just couldn’t get the seller to budge quickly enough. Another in New York City was rushing to get a developer to sign by midnight but there seemed to be some issues. I emailed a Realtor I know out in Burbank, CA, David Fogg, and he responded:  “The real story is the intense difficulty qualified people are having in obtaining financing, as well as the appraisal regulations which are hurting many home sales.” So does the housing market implode at midnight?  I seriously doubt it, seeing as the tax credit extension already hasn’t had nearly the effect the first credit did last fall.  In the run-up to the previous deadline, we saw annualized sales volume rise to nearly 6.5 million units. Volum
 es then tanked to 5m units by January and were only up to 5.3m by March. I doubt we’re going to get back to 6.5m by April. All this says is that demand was pulled forward, and there just aren’t that many buyers left who are buying solely because of the credit.

Most experts I talk to, including the Realtors’ own economist, believe we may see another dip in sales and prices before we are really on the road to recovery. Remember, Spring is historically the busiest market, and we’d probably have seen some bump, tax credit or not. And it’s not like the government is gone from housing entirely, given that the $75 billion mortgage bailout is stemming some of the foreclosure crisis, and Fannie Mae is still offering 3.5% back when you buy one of their foreclosed properties.  Housing today is dependent on financing and confidence, and both of those are hanging by a thread. Frankly I’m glad to see the tax credit go, because maybe now we can see the housing market’s true colors, without excuses.”

DSNews.com – Fannie Mae takes a second look at REO Property Sales

Fannie Mae is tightening up its initiative to facilitate the sale of REOs to owner-occupants and entities using public funds, such as local housing and community development agencies. Fannie Mae says these buyers bring permanency and stability to tenuous markets where swollen inventories of foreclosures have taken their toll, and the GSE is making some changes to ensure owner-occupants and public entities have “first look” at its REO homes.

Fannie Mae initially rolled out its First Look initiative last fall. Under the program, the GSE only considers offers from those seeking to purchase a home as their primary residence and public entities during the first 15 days that a property is listed.  Julia Dugger, Fannie Mae’s senior manager of marketing communications, explained that the execution of the First Look program has been “tricky,” primarily because individual homebuyers and public entities usually can’t view multiple listing services (MLS), and consequently don’t know when the property they’re interested in was actually listed or when the 15-day First Look window ends. To address this snag, Fannie Mae is making some changes to the program. Going forward, First Look will be tracked based on days listed on the GSE’s REO marketing site HomePath.com. Public entities, too, are taking advantage of the no-investor marketplace provided by First Look, particularly those agencies that have been awarded federal funding through HUD’s Neighborhood Stabilization Program (NSP) to purchase, rehabilitate, and resell foreclosed and abandoned properties. Beginning today, Fannie Mae is extending the First Look marketing period for its REO homes in Nevada from 15 days to 30 days. Dugger says the GSE may explore lengthening the timeframe in other areas as well.

Goldman CEO acknowledges company ‘role’ in finance crisis

Goldman Sachs’ CEO Lloyd Blankfein said in an interview to CNN, broadcast Sunday that his company bears some blame for the real estate bubble that led to the global financial meltdown. “We made a contribution to the bubble,” adding that executives at the company now “beat ourselves up” for the error, although he said there was a lot of blame to go around. “How did we make a contribution? We’re a lender. We lent money to companies, we lent, we financed real estate ventures that had too much leverage, we made a contribution to leverage,” Blankfein said. “State and local governments took on debts and deficits, the federal government took on big deficits. All made a contribution to the over-leverage — and consumers over-leveraged themselves,” he said. But did we play a role in that? Absolutely we did,” he said.

He added: “Did we think we were doing that at the time? No. In hindsight? Yes. Goldman has been roundly berated for having emerged a highly profitable winner in the wake of the financial crisis, while many of its investors took major losses. Blankfein’s concession came just days after a contentious congressional hearing last week at which he and other current and former Goldman employees denied any wrongdoing after a Senate probe alleged fraud that the firm bet heavily against the housing market in 2007 without telling investors who were buying its mortgage-backed securities. Goldman faces a vexing dilemma, legal experts say, as the Justice Department conducts a criminal investigation into whether the financial services giant duped buyers of its securities. Goldman could lose its vaunted reputation for integrity if it admits to wrongdoing as part of a deal to avoid criminal prosecution. The value of Goldman’s stock has fallen $21 billion — a fifth of its market value — si
 nce the Securities and Exchanges Commission (SEC) alleged that the firm created and sold a mortgage-backed security in 2007 without telling investors that it had been partly shaped by a hedge fund manager who bet that it would fail. Friday, Goldman’s stock fell 9% to $145.20.

Now on to our real estate investing education section …

Bank Foreclosures vs Tax Foreclosures – Which is Better?

Tax foreclosures were once all the rage but with media attention on short sales and REO properties, they have recently fallen out of favor. Of course, among savvy real estate buyers and investors, nothing is “off the table” so it’s only fair to spend a bit of time examining the pros and cons associated with each.

Tax Foreclosures are Not Tax Deed Sales

It’s important to differentiate between tax foreclosures, tax deed sales and other forms of government sponsored property sales. Tax foreclosures are typically the result of unpaid tax or other liens placed on the property (for example, unpaid income taxes). Tax deed sales are often the result of a homeowner failing to pay the local property taxes on a given parcel; after a period of time the taxes are paid by someone else (often an investor) with a guaranteed rate of return ranging from 5 to as high as 18 percent upon redemption.  At some point and time in the future, if the original owner does not redeem the property and repay the prior property taxes plus interest, the property may eventually go up for auction.

Pros & Cons

Although tax foreclosure sales may sound simple enough, in reality they are often plagued by problems. For example, unlike short sales or REO properties, the buyer often assumes all prior liability for past due taxes when purchasing the property. Additional liens (including other forms of taxes, HOA fees, etc…) may add thousands to the purchase price of the property. Because the tax lien takes precedent over all other liens, a substantial sum may be required to obtain clear title and clear liens against the property. Remember, there is often a mortgage in addition to the back taxes owed.

Tax foreclosures can also be highly competitive; auctions often take place quarterly or once per month with extensive advertising used to attract maximum bidding. Pre-approval is necessary since closing typically takes place within 10 to 30 days after the auction. Bidders may conform to the dictates of the taxing authority rather than negotiate a closing based upon their own individual situation. Of course, the use of leverage, timing and other financial issues may significantly impact the individual rate of return for any type of real estate investment. Be sure to take all considerations into account before moving forward with a tax foreclosure sale.

Although both REO and tax foreclosed homes are typically sold in “as is” condition, the bank representative and others typically attempt to provide a thorough review of the property. Tax foreclosures should be extensively scrutinized prior to the sale in order to gain as much information as possible; it’s not unheard of for investors to believe they got a “great deal” and were the lowest bidder only to find out there were zoning irregularities, EPA restrictions or other major issues associated with the property.

In the Moment, For the Moment
Christian Yepez, Trusted Investor

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