Dan Krell

People need a place to live. This is the mantra of many savvy real estate investors who are looking for fantastic buys on homes to use as rental properties. Real estate investors know that rental properties are looking better because markets are cyclical. Investors following the real estate market know that many people wanting to purchase a home prefer to rent during uncertain financial times.

The "MRIS Trends in Housing; Mid-Year 2008" (Metro Regional Information Systems Inc, MRIS.com) appears to confirm what real estate investors know. The report states that potential home buyers prefer to rent while timing "their entry into the market." Interestingly, vacancies for traditional apartment complexes rose to 3.6% (from 2.9%) in the last year, indicating that renters are choosing to rent single family homes and condos rather than a traditional apartment. The report points to home sellers converting their "homes for sale" to "homes for rent" for the increase in apartment vacancies.

The MRIS report also states that rents increased 3.1% in the last year. Unlike the rental market of several years ago, where renters were negotiating leases way below list price, real estate investors are expecting to rent housing at a premium.

How much should you pay for a rental property? Savvy real estate investors typically do not want to pay any more than 70% of retail value for their rental properties; however many set their price tolerance lower. Consulting with a Realtor can assist your analysis in how much to offer for any home.

Let's face it, if you intend to buy at bargain prices, you will probably be purchasing the home "as-is." Seasoned investors will account for the cost repairs to bring the home up to code in their purchase price. Consulting with a licensed contractor can assist you in determining what repairs and updates are necessary.

Buying a home at the right price is only part of the equation. When considering a rental property, investors look for a home in a prime location. For example, having a rental near a metro stop can sometimes rent faster and for more money than an equivalent rental in a secluded neighborhood.

Some investors might say that the goal of buying a rental property is to have the home "pay for itself." This means that the rent you collect should cover the home's mortgage, taxes, insurance, maintenance and other expenses. Consulting with a Realtor and a rental management company can assist your neighborhood rent analysis.

Make no mistake, real estate investing is risky. Success as a real estate investor is not assured. From dealing with bad tenants to carrying a vacant rental property, every investor has a horror story.

Whether you are a seasoned or novice investor, you should always do your home work and consult professionals (such as your attorney, accountant, Realtor, financial advisor) to assist you in deciding if buying a rental property is right for you. Additionally your professional network can assist in determining your risk level as well as assisting you in creating your real estate investment plan. If you decide to become a real estate investor, maintaining communication with your professional network can help you anticipate and possibly overcome any bumps in the road toward your goals.

Dan Krell is a Realtor with Fairfax Realty, Inc. in North Bethesda, MD. You can access more information at www.DanKrell.com. This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 6, 2008 . Copyright (c) 2008 Dan Krell.

As home value depreciate, there is much discussion about appealing your property tax. Below is an article I published in 2007 about appealing your property assessment in Montgomery County, MD:

Many homeowners received their new tax assessments this past year. As they opened the official envelopes with much trepidation, many were in disbelief in the increase in property tax. As home values skyrocketed the last few years, so did tax bills. If you have recently received or are anticipating receiving a new assessment this year, you have the opportunity to exercise your rights by appealing the new assessment.

When you appeal your property tax assessment, you are challenging the value that is placed on your home by the State.

How does the government determine how much your home is worth? According to the Maryland Department of Assessments and Taxation (DAT) web site (www.dat.state.md.us), they oversee over two million property accounts. The state employs trained appraisers to evaluate and appraise every property. These appraisers use standard appraisal techniques to determine the value of your home.

Every property is re-evaluated every three years. If there is a change of value, there is three year phase in period for the value to be used as a tax base. To see how the assessor determined your home's value, you can obtain a copy of the assessor's worksheet at the local assessment office, which is located at 51 Monroe Street (4th Floor) Rockville, MD.

The appeal process begins by first receiving your new tax assessment. If you are satisfied with the value place on your home, there is nothing for you to do except pay the bill. However, if you are dissatisfied with the assessment, you have forty-five days to file an appeal.

The appeal is first heard at the Supervisor's level, which allows you to discuss the assessment with an assessor. At this time, it is wise to obtain the assessment worksheet from the local assessment office (indicated above). You can obtain the worksheet for your home at no cost, and for a fee you can obtain the worksheets for the comparables used by the assessor. There will be an informal hearing to review all the information. After the hearing, a "final notice" is issued.

If you remained dissatisfied with the "final notice", you have thirty days to appeal to the Property Tax Assessment Appeal Board (PTAAB). The board is not a part of the DAT; the board is comprised of local residents who have been appointed by the Governor. The PTAAB conducts an informal hearing to review all the relevant information. The board will issue a notice of decision to all parties involved.

If your dissatisfaction continues, you have thirty days to appeal to the Maryland Tax Court (MTC). In MTC, you are given the opportunity to present your case. The MTC will issue a decision based on the information presented.

Although MTC is the last administrative step in the appeal process, you can appeal the MTC decision to the Circuit Court. The Circuit Court reviews the case to determine if there were any legal errors in the process.

Hopefully, by following the process you will at least have the satisfaction of exercising your rights, and possibly being successful in appealing your property tax assessment. For more information about the appeal process, and to view the Property Owner's Bill of Rights, visit the DAT website (www.dat.state.md.us/sdatweb/hog.html).

Dan Krell is a Realtor with Fairfax Realty, Inc. in Rockville, MD. You can access more information at www.DanKrell.com. This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 5, 2007. Copyright (c) 2007 Dan Krell.

Buying a bank owned home might be a great way to get a great deal on your first home or the home of your dreams. However, you will find that buying a distressed home from a corporate owner is slightly different than purchasing a non-distressed home from an owner-occupant.

When you are purchasing a bank owned home, the bank requires you to sign addendums that favor the bank in many ways. Foreclosed homes that are sold by banks are exempt from many disclosures, including the Maryland Residential Property Disclosure And Disclaimer Statement (which discloses the home condition as well as any latent defects). Additionally, banks selling foreclosures (and their real estate agents) will sometimes want to take control of the entire transaction by coercing you to use their vendors, including their title company.

First and foremost, the bank is selling the foreclosure in as-is condition. This means that "what you see is what you get." Often, what you don't see is what you get as well. The bank addendums will warn of possible mold and other hazards that may be in the home. Even the best of homes can develop issues due to having utilities disconnected as well as being vacant for many months. A thorough home inspection, that may include testing for environmental hazards, is highly recommended to determine the condition of the home.

Another consideration in purchasing a foreclosure is that the bank will only offer you a Special (or limited) Warranty Deed. In a typical residential transaction, the seller will provide to you a warranty deed that guarantees that the seller has the ability to sell the home, and all debts held against the home are paid. However, buying a foreclosure is a bit different in that the bank will only provide a deed that covers the period the bank has had ownership of the home. Owner's coverage title insurance will usually protect you from title defects not corrected by the bank; however, as policies vary, you should read the fine print.

Lastly, your deposit will become non-refundable after a short period of time. The bank will give you a short period for due diligence (obtain financing, conduct home inspection, etc); be prepared to act quickly!

So, is it a good idea to purchase a foreclosed home? Buying a foreclosure could be a real coup for you- but you must do your due diligence. Before you write an offer on a foreclosure, line up your vendors (such as home inspector, title attorney, contractors) so you can act quickly by having your team determine the home's condition and legal status.

Unfortunately, the proliferation of distressed properties has some real estate professionals believe that consumer protection laws do not apply (such as RESPA and Maryland's Wet Settlement Act). Make sure you are well represented! As a home buyer, you have the legal right to choose your vendors (including home inspector, title attorney, lender, etc.).

If you are planning to purchase a bank owned home, it is highly recommended that you review these special addendums carefully as well as consulting an attorney if you do not understand what these addendums require of you. Remember, "caveat emptor" applies when buying a bank owned home.

Dan Krell is a Realtor with Fairfax Realty, Inc. in Rockville, MD. You can access more information at www.DanKrell.com. This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 22, 2008. Copyright (c) 2008 Dan Krell.

Are you considering purchasing a distressed property, such as a foreclosed home or a short sale, and need to make repairs on the home prior to moving in? Or maybe you have decided to stay in your present home for a few more years, but want to make updates or possibly expand the present space. The question you may have is, "how can I get a loan for these types of repairs and renovations?"

Even during the ongoing credit crunch, there are still renovation loans. One of the most popular renovation loans today is the FHA 203(k). Much like the FHA loan everyone is familiar with (FHA 203b), the FHA 203(k) loan can be used to purchase a home too! The difference is that the FHA 203 (k) provides funding for necessary repairs, updates and/or renovations on your new home; and it is all in one loan. Additionally, home owners needing funds to renovate, update, or expand their current homes can refinance with the FHA 203(k), as long as they have owned it for at least six months.

The FHA 203(k) was first introduced in 1978 through a change in the National Housing Act, section 203(k), which endorses the maintenance of the Nation's housing. The FHA 203k is HUD's primary device to meet their goal of "community and neighborhood revitalization" while expanding homeownership opportunities (HUD.gov). Additionally, HUD promotes the use of the FHA 203k to lenders and community organizations as a way to meet the goals of the Community Reinvestment Act.

Of course not all homes are eligible. Some of the eligibility requirements include that your home must be one to four units, the home must be at least one year old and meet neighborhood zoning requirements. FHA allows for major rehabilitation on homes that have been razed provided that the foundation still exists.

Improvements that are eligible for the FHA 203(k) include (but are not limited to) additions, unit conversions, and cosmetic repairs. However, luxury items and items that are not permanently part of the home (such as hot tubs) are not eligible. With the FHA 203(k), the home owner can add or expand a room, add a deck, convert a 1 unit home to a multi-unit home (up to four units), or convert a multi-unit home to a one unit home, and make cosmetic repairs (including giving your kitchen and bathrooms a facelift).

Do you want to make your home more energy efficient? Making your home "green" can save you lots of money down the road; however the transformation can cost quite a bit of money. The good news is that the FHA 203(k) loan allows for many "green" upgrades! Some items that may be eligible include replacing your HVAC and/or windows, waterproofing your basement, and installing solar panels.

The process of obtaining the FHA 203(k) is a little different than a standard mortgage, as additional underwriting requirements include architectural plans and repair estimates (materials and labor) from licensed contractors. The funds for the repairs/renovations are released in draws to ensure the work is completed as intended as well as meeting all zoning, health and building codes.

For more information about the FHA 203(k) mortgage, or to find a FHA 203(k) lender, you can visit the HUD website (HUD.gov).

Dan Krell is a Realtor with Fairfax Realty, Inc. in Rockville, MD. You can access more information at www.DanKrell.com. This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 15, 2008. Copyright (c) 2008 Dan Krell.

If you haven't yet heard, the newly created Federal Housing Finance Agency (FHFA) wasted little time in pursuing its regulatory authority over Fannie Mae and Freddie Mac by taking over as conservator. The agency was established as the new regulatory agency for Government Sponsored Enterprises (GSE) when President Bush signed the Housing and Economic Recovery Act of 2008 on July 30th. The takeover is a coordinated effort between the FHFA, the United States Treasury Department and the Federal Reserve.

In a statement made on Sunday, FHFA secretary James Lockhart outlined the reasons for the takeover of Fannie Mae and Freddie Mac as well as the goals of the conservatorship. (The Secretary's statement can be found at: www.ofheo.gov/media/statements). Secretary Lockhart stressed the importance of Fannie Mae's and Freddie Mac's role in the housing industry. However, the FHFA felt it was necessary to take action because of Fannie and Freddie's ongoing capitalization problems, poor financial performance and deteriorated market conditions.

Treasury Secretary Henry Paulson also underscored the importance of Fannie and Freddie's survival (the Secretary's statement can be seen at www.treas.gov/press/releases). Secretary Paulson stated that the failure of Fannie Mae and Freddie Mac would cause great turmoil in local and global markets. The turmoil would in turn negatively impact everyone personally, reducing savings and restricting credit (all forms of credit would be affected).

Due to the fragility and uncertainty of Fannie and Freddie in recent weeks, Treasury Secretary Paulson stated that the risk of funneling money to these institutions "in their current form" was not in the best interest of the tax payers. As the FHFA takes over operations in Fannie and Freddie, the role of the U.S. Treasury will be to ensure that Fannie and Freddie maintain a positive net worth through preferred stock purchases. By maintaining a positive net worth, Fannie and Freddie dodge the bullet of receivership (which could trigger a global financial meltdown).

The Treasury's second role will be to purchase mortgage backed securities (MBS) from Fannie and Freddie. Although the MBS purchases will be temporary, it is anticipated that the special MBS purchases will increase mortgage availability and affordability.

Additionally, special credit facilities will be made available to the FHFA entities (which include Fannie Mae and Freddie as well as the twelve Federal Home Loan Banks) to sustain their liquidity. Secretary Lockhart stated that the Federal Home Loan Banks will most likely not use the recently made available facilities as they have "preformed well over the last year."

The conservatorship is intended to be temporary; there is no timeline for transition. However, as Fannie and Freddie are required to reduce their mortgage portfolios starting in 2010, it is anticipated the new model will allow for a more streamlined and profitable organization at both Fannie Mae and Freddie Mac.

Although many agree that the takeover will positively affect interest rates temporarily, modestly lowered interest rates will not be enough to fix the real estate problem. The real story (that will evolve in ensuing months) will be Fannie and Freddie's encouragement and support of banks to modify delinquent loans rather than foreclosing, which will play a role in the stabilization of home values and ultimately the real estate market.

Dan Krell is a Realtor with Fairfax Realty, Inc. in Rockville, MD. You can access more information at www.DanKrell.com. This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 8, 2008. Copyright (c) 2008 Dan Krell.