Time is Money - Keeping Track of Time to Improve Your Bottom Line
You have heard it said "time is money" and no place does that hold more true than when investing in short sales real estate.
Have you ever stopped to calculate the cost of your actual time? What about the value of that same time? Most people sell their
time in exchange for as little as $7.15 per hour (minimum wage). Take time to really let that set in. Envision the last day of your
life with your loved ones by your side. Would you trade that last hour for $7 - pre-tax!?! No!! Yet each and every day people shuffle
to and from work, spend hours each week in traffic and plow through jobs that leave them mentally and physically exhausted in exchange
for a few dollars per hour.
Let's work in reverse and assume you want to generate an additional $1,000 per month or $12,000 per year - after tax. What are your options?
Well, if you are in the lowest income bracket (currently 15 percent) and went to work for yourself - you would need to earn an additional
$$1,400 per month to bring home just under $1,000 per month. At $20 per hour (roughly the average hourly income) that would require an additional
70 hours per month or the entire year assuming it didn't push you into a higher tax bracket!
What about short sales? Is it possible to make $12,000 from just one deal? Of course! That plus much more is entirely possible - in fact, it is done
on a regular basis. How much time does it take to find, place a bid and purchase your first short sale property? Probably less time than it would require
in your first month of part-time work above and the first time is the toughest! Once you understand the process and your financing is in place, each
subsequent deal becomes easier and easier.
What would happen if you just turned one solid short sale deal each year? For ease of numbers let's just call it $10,000 a year. For less than one or
two week's worth of work you could reduce household debt, afford a great vacation, save for retirement or pay for the kids college without having to spend
all your time away from home.
Finding the time to begin investing in your financial future is as simple as 1-2-3.
1. Cut the cable and invest 3 months worth of the savings into education. Now you have the time and money required to educate yourself on the basics of short sale
investing. Simply transfer the money you would normally spend on those premium cable channels into information that will transform your financial future.
2. Set aside the time to get started. If you normally watch television every night for an hour or two; replace it with short sales prospecting. If you are more of the
weekend football warrior then trade an off-season for a new financial future by spending your days scouting real estate. Whatever works best is the right method for you - just do it!
3. Stop dreaming and start doing. Seriously, take action. Planning only goes so far but action is where the rubber meets the road. Make it a priority to fill out the paper work
and put what you have learned into practice. Commit to doing at least one short sale deal then make up your mind whether or not it was worth it. Chances are you will wonder why it
ever took you so long to begin!
Take action now! See you on the other side!! 2009 is mine!!
Charles Gardner
I'm sure most of you have seen this already, but for those who miseed it.
The news was a little grim about the jobs market, as continuing jobless claims rose more than expected. The Department of Labor reported that those who are continuing to claim unemployment rose by 101,000 to 4.61 million, which was well above most analysts' expectation of 4.5 million. It also marks the highest level of jobless claims since November 1982.
President elect Barack Obama warned today that a "bad situation could become dramatically worse" if Congress does not approve his upcoming stimulus package. President elect Obama did have some positive comments: "The very fact that this crisis is largely of our own making means that it is not beyond our ability to solve," he stated.
New FHA Guidelines Make Short Sales Easier than Ever. As if increased minimum wage laws and ultra-low interest rates weren't good enough, short sale investors will be downright delirious to learn about changes to FHA laws set to begin in 2009. On December 24th, 2008 the Department of Housing and Urban Development (HUD) released "Mortgage Letter 2008-43" this is a powerful boon to every short sale investor in the nation.
Here are the major changes coming soon to a FHA/HUD foreclosure near you!
1. Elimination of the clause calling for 63 percent or greater property appraisal versus debt. Now properties can appraise at any value and still be eligible for the program.
2. Increased Net. Instead of the former 82 percent net based upon appraisal value the new limits will be 88 percent if sold with 30 days, 86 percent if sold within 60 days and 84 percent thereafter.
3. Increased Closing Costs on Short Sales. Although not a lot - FHA will now allow up to 1 percent of closing costs rather than the former zero.
4. Increased Seller Incentives. Again, although not a lot this will at least allow sellers a reasonable down payment toward a rental home by putting up to $1,000 in their pocket at closing.
5. Increased Lien Allocations. Junior liens up to $2,500 are now allowed - just one more tool that helps sweeten the pot for short sale investors interested in pursuing FHA/HUD homes.
6. Removal of Repair Limitations. This is one change that could potentially add up to thousands depending upon the required maintenance on the home. This opens the doors to many homes that would otherwise be ignored due to excessive damage.
7. Exceptions to Non-Owner Occupant Requirements. This is on a case by case basis but opens to the door to rental properties formerly excluded from the program.
Charles Gardner
Happy New Year! As millions of Americans salute the beginning of 2009 with expectations of a return to a more traditional economic and investing structure, experts agree things are likely to get worse before they get better a consideration for every short sale buyer but one that should also encourage potential investors to seek returns in areas outside of the financial markets; areas like short sale real estate. Even as hopes for a brighter financial future are likely to be conservative for most Americans the future never fails to bring change and change offers opportunity to those that understand how to take advantage of it. Let's examine several changes of both direct and indirect interest to short sale investors beginning with the minimum wage laws slated to go into effect for 2009.
While many small business owners rue every small increase in minimum wage law, it is actually good news for most short sale investors. An increase in minimum wage translates into slightly higher eligibility requirements especially for first-time homeowners and others seeking affordable housing. Let's take a few minutes to examine the basic eligibility requirements and sales prices to go into effect for 2009.
Federal Minimum Wages will increase on July 24, 2009 to $7.25 per hour but many states have already enacted higher minimum wage laws as of January 1, 2009. California, Illinois, Massachusetts and Vermont are each $8 per hour while Oregon is at $8.40 and Washington at $8.55.Using the Federal rate of $7.25 results in $290 per week earnings or $15,080 annually. A single person making minimum wage at a 30 percent income ratio would only be able to afford $377 per month toward mortgage and interest payments or roughly a $65,000 home financed for 30 years at a fixed 5.5 percent interest rate. With interest rates projected to drop to 4.5 percent fixed later this year, the same individual would have a mortgage payment of just $380 per month on a $75,000 mortgage....well within the reach of a short sale starter home in many areas of the nation.
Let's take a look at affordability levels for a two income household with both partners only making the new federal minimum wage of $7.25. The combined annual household income of $30,160 at a 30 percent debt to income ratio would allow monthly mortgage payments of $754 per month. At today's 5.5 percent fixed 30 year rates that equates to a selling price of roughly $135,000 or $150,000 at a 4.5 percent fixed 30 year rate.
Short sale investors need not fear an increase in minimum wage laws. It is downright good news since it allows marginal buyers to qualify for more house than ever. Combined with historically low interest rates, nearly any household in America can afford an entry level starter home even on a minimum wage household income.
With interest rates expected to bottom out around 4.5 percent fixed during 2009, many short sale investors are considering the option of acting like the bank by holding a note when reselling a property. If history provides an example, this could be a potentially lucrative move for those inclined toward longer term profits. For example, let's assume you purchased a $150,000 home via short sale and finance it for 30 years at a fixed rate of 4.5 percent. Monthly payments would be $760 per month. If you held the home until interest rates resumed their upward momentum then took a note at a higher rate the monthly difference would be yours to keep without the hassle of taxes, insurance, maintenance or other out of pocket expenses even if you sold the home for exactly $150,000 - taking NO profit on the sales price of the home!
Assume you sold the home for the exact same price but financed it at 9.5 percent fixed you would enjoy $500 per month profit for 30 years a total of $180,000 without making a penny more on the original purchase price of the home. As an added benefit, the buyer would be responsible for property taxes, insurance premiums, maintenance and other upkeep on the home. The home would act as collateral in the event of a default. Of course, as inflation moves upward and prices of real estate resume their normal trajectory, it would be reasonable to expect to make a tidy profit in addition to the interest rate premium. There is a downside to holding a note, you remain responsible for your portion of the mortgage (unless it is paid in full) and not every lender allows this type of arrangement.
Since the home itself acts as collateral for the loan the potential upside remains viable if the terms of your original loan allow for this situation. Oddly enough, one of the biggest threats to long term profitability is early payment of the loan by the buyer. Should the buyer refinance or pay the loan in full earlier than anticipated then it could severely impact your long term earnings.
In the 1970's interest rates peaked at nearly 14 percent fixed after a period of rapid inflationary pressures. Most experts agree, despite a temporary decline in prices of goods and services, the long term outlook for inflation remains high due to the unprecedented degree of stimulus currently being injected into the economy. How long it takes the economic stimulus to reach the average consumer is entirely up to debate but for those interested in holding a note for all or part of the purchase price of a home serious consideration should be given to the prospect. It is one more option to short sale investors interested in building a long term wealth solution.
Charles Gardner
2009 is Mine
Home prices posted an 18% drop for October of last year, the biggest drop ever since the Standard & Poor's/Case-Shiller 20 city housing index was created. The 10-city index fared a bit worse, dropping 19.1%. And three areas really got wacked: Phoenix dropped 33%, Las Vegas slid 32%, and San Francisco declined 31%.
Consumer Confidence Index dropped 38 in December from a revised 44.7 in November. The low number surprised economists: a survey of 62 number crunches estimated that the reading would come in around 45.
But in good news for consumers, General Motors announced that it would once again offer zero percent financing for the next several weeks. This comes on the heels of the announcement that GMAC, its financing arm, was approved as a bank, therefore eligible to tap into $5 billion of the $700 billion of TARP funds. Now on to Short Sale investing!
Short sale investors interested in obtaining the lowest possible price should learn to turn the tables on rapid rate increases by discounting hedonic pricing models to their benefit. Hedonic pricing essentially works like this; instead of calculating the increase in a price of a home as inflationary, the "upgrades" and other enhanced "quality" measures are calculated independent of the base price of the home.
While this is a valid method of taking quality improvements into account especially during periods of economic growth, it does little to account for increased "liabilities" during periods of economic or financial contraction.
Let's demonstrate by using a basic example; Buyer A and Buyer B both purchased 3 bedrooms, 2 bath homes on 1/3 acre lots with city utilities. Each home is 1500 sq. feet living area and is 3 years of age. Home A is a "bare bones" affordable housing model with laminate counter-tops, inexpensive carpet and off the shelf fixtures throughout. Standard bathtub, windows, doors and other items were used. The cost of the home was $100 per square foot or roughly $150,000 plus the price of the lot. Buyer B also purchased a home of the same size but with granite countertops, imported Italian tile, upgraded windows and custom features throughout. Upgraded appliances, a large in-ground pool, whirlpool spa tubs and other upgrades resulted in a cost of $300 per square foot or a selling price of $450,000 plus the price of the lot.
Unfortunately, as the economy begins to stagnate items originally deemed highly desirable quickly become undesirable as the cost of maintenance and repairs outpaces the ability of homeowners to sustain these items. This is where short sale investors are likely to reap major benefits. Deep discounts of common upgrades or former enhancements are possible by keeping these rules of thumb in mind:
1. If it requires high maintenance it is a liability and should be deeply discounted. In-ground pools are a prime example. Not only do they increase electric bills when heating but cleaning supplies and maintenance contracts can easily cost $100-$250 per month. Items that require regular out of pocket costs should be deeply discounted as potential liabilities for a property. Aggressive pricing estimates would deduct the cost of repairs, maintenance and even potential removal of the item.
2. If it requires minimal maintenance but adds no additional value it should be discounted by comparing a standard pricing model. For instance, those beautiful granite countertops don't save money or increase functionality to the home therefore they are of no more "real" value when selling than laminate or less expensive alternatives.
Make a point of going through the home and putting together a comprehensive replacement price list based upon standard "off the shelf" alternatives for all items that do not activity save money or represent major buying incentives in the new economy.
As 2008 closes and short sale investors look to 2009 the question on everyone's mind is whether or not the economy will continue its downward spiral or experience a recovery.
Despite the considerable abundance of doom and gloom reporting in the media, there are a few bright spots that aren't receiving the full attention deserved. Short sale investors searching for a silver lining in an otherwise cloudy economic environment would do well to focus on these current trends:
1. $40 per gallon oil and $1.65 per average gasoline. How low will it go and how long it will last is subject to debate but one thing is certain; those who rely upon gasoline and oil are experiencing a bit of much needed relief in the form of lower prices.
2. Low Mortgage Rates & Dropping LIBOR Rates. The cost of money is cheap - not just inexpensive but downright cheap. Make no mistake about it, real interest rates are the lowest in decades and make it less expensive than ever to borrow money to build a short sale empire. It is possible to buy more house for less money while simultaneously spending less on taxes and insurance. It's a win-win-win situation for those with the courage to buy when others are selling.
3. Huge Fiscal Stimulus. Coming soon to a federal budget near you is a huge fiscal stimulus package destined to become one of the largest in history. Bridges, roads, hospitals, schools, utilities and other mega-projects are slated to spur the economic growth needed to jump-start the economy. Whether you believe the stimulus package will work or worsen the long term economy, one thing is certain; those workers will need affordable and convenient housing for long term projects. Short sale investors would do well to make a mental note of future road plans, schools and other large building projects in the target areas of interest. Whether you buy low and sell high or wait for the path of progress to reach you, it is a position of strength rather than weakness.
4. Long Term Lag-Times. The global decline in commodities and other tangible assets will eventually lead to long term shortages with tremendous upside profit potential for short sale investors. Remember, there is a lag time between the supply and demand which will result in high demand and low supply once the economy stabilizes. Everything from basic building materials to mineral rights, timber and even natural gas holdings will be impacted. Savvy short sale buyers would do well to realize the long term potential inherent in their holdings.
5. More Renters. Foreclosures aren't over...in fact, due to legislative restrictions on the number of "bad loans" and tangible assets a bank may have on the books at any given point in time, the current bail-out simply provided the liquidity required for banks to prepare for the 2nd stage of the growing mortgage meltdown. Most experts agree that what began as a sub-prime mess is expanding into ARM's, low/no Doc loans and even prime mortgages in response to rising unemployment, falling stocks and bonds plus a plethora of other economic problems hit the average homeowner.
To keep up with how the economy is affecting short sale investing sign up for our information at http://www.shortsaleriches.com
See you on the other side!
Charles
GMAC Financial Services got a huge Christmas present this week when the Federal Reserve approved its application to become a bank holding company, thereby enabling it to tap into $700 billion of TARP rescue funds. Not only will GMAC be able to tap into the bank stabilizing funds, it will also be able to borrow from the Fed's discount window for virtually no interest.
Did you see these pretty cool amazon.com holiday facts they released:
* Amazon.com sold enough "Breaking Dawn" books that stacked end to end they would reach the summit of Mt. Everest eight times.
* During the period from Nov. 15 - Dec. 10, Amazon sold one copy of Microsoft Office Home and Student 2007 every 2.5 minutes.
* The weight of all GPS devices sold from Black Friday through December equals the combined weight of 151 Mini Coopers.
* Amazon sold enough high-performance headphones that everyone attending the last three Super Bowls could grab a set and rock out.
* Amazon Grocery sold enough coffee to give each resident of the highly caffeinated city of Seattle a cup per day for two months.
* Amazon sold enough Casio G-Shock watches to outfit every Kanye West fan attending the 2008 Glow in the Dark Tour concert at Madison Square Garden, N.Y.
* Amazon sold enough Coldplay CDs that laid side by side they'd stretch from Seattle to Violet Hill (a street in London and the album's first single) and more than halfway back.
* Amazon sold enough Munchkin Mozart Magic Cubes to fill every seat in the Sydney Opera House five times over.
* Amazon sold enough Wild Planet Hyper Dash games that the total weight of sets sold is over 81,000 pounds -- almost the size of two 747 aircrafts.
* Amazon sold enough Spalding basketballs to fill three C-130 cargo planes.
The Misery Index and Short Sales Negotiations
The Misery index is derived from taking the unemployment rate and adding it to the rate of inflation to gauge the economic and social climate of the nation. The higher the misery index, the more negative and desperate the average consumer tends to become. The low was 2.9 percent in July of 1954 with the high reaching 21.9 in June of 1980. Today the misery index stands at 7.77 and rising as of the end of November 2008.
So, how should short sale investors use this information? Well, in a couple of ways. First of all, watch the macro trend. As the index increases so does the uncertainty of the average American consumer (and by proxy, business owners). Their spending habits tend to decrease and they often start to save for a rainy day. People, business owners and even banks in this stage tend to think it is short-term and less inclined to negotiate more than a minimal reduction.
Next, watch for a shift. The second stage takes place as momentum builds and the rate of change increases at a faster and faster pace. Uncertainty gives rise to outright fear as people begin to worry about their own job or financial future. Banks and business owners begin to think this could last longer than expected and begin to pad their own balance sheets for the long run. There is a decidedly motivated response to downsize unnecessary assets, overhead or other non-performing holdings.
Short sale investors will find these individuals and banks much more motivated especially if approaching with fast closing and minimal escape clauses. The emphasis of 90 percent (or more) of people will be a flight to "safety" during this stage as evidenced by the purchase of government bonds or other items that provide little to no real return.
The third and final stage is recuperation. Banks, investors and others realize the properties or other holdings were now over-sold and represent financially desirable long term investments.
There is a renewed interest in actual earnings due to the erosion of real earning power. Every short sale investor will do well to remember that earned income represents only a relatively modest allocation of most income over the long term few people can actually live entirely on their own earned income. At this point, the money tends to flood into tangible assets and commodities including oil, real estate, farm and agricultural lands or products, oil, minerals, natural gas and other related holdings resulting in rapidly rising prices...and profits for those with the foresight to buy during stage two.
Where are we today? Most experts agree we are now transitioning from stage one into stage two making this the perfect time to begin buying foreclosures and short sales in earnest. To keep track of where the misery index is heading, visit http://www.miseryindex.us/default-pda.asp at least quarterly. If you want to keep up with other trends in short sales and the economy sign up for our daily information at http://www.shortsaleriches.com
See you on the other side!
Charles Gardner
HBMP: working to get the economy moving through real estate investing and home ownership. Short sales, rent to own, Luxury Homes, and Short Sales negotiations done in-house.
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
Powered by the ActiveRain Real Estate Network
© 2009 ActiveRain Corp. All Rights Reserved
