Santa Claus and Mortgage Modification
We believe there is a Santa Claus! And he loves to represent buyers in foreclosure and make a ton of money. and then make sure you register for our upcoming Recession Proof Investing webinar! Click here
Mortgage applications continue to be on the rise given the low interest rate environment, and one prominent CEO signaled a turning point, according to the Wall Street Journal. Bank of America CEO Kenneth Lewis said that mid-2009 would be the stabilizing point for house prices, and the bank recently reassigned over 300 loan processors from the home equity division to the mortgage division.
The good joy was also at several other lending institutions. Loan applications were up 300% at Regions Bank, and applications at U.S. Bancorp surged from 11,000 to 30,000 in comparable period in December. Rates on a 30 year fixed mortgage now hover around 5%, representing the lowest level since reporting began in 1971.
Meanwhile, mortgage modifications continue to fail. In the latest report by the Office of the Comptroller of the Currency, 37% of mortgages that were modified in the first quarter of 2008 were more than 60 days delinquent. And for those modified in just 3 months another 19% were also 60 days behind. One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months.
The implosion in modifications means two things: there will be a ton of short sales and REOs in 2009. Are you ready for them? Go here to make sure you're ready by watching our webinar.
Stock market investors are accustomed to using dollar cost averaging but the concept is relatively new to real estate and short sale investing. In part, this is due to the typical rise of real estate over time. Unlike stocks or bonds that tend to be highly volatile, real estate is usually quite steady and predictable over long periods of time. However, during periods of fluctuations and volatility, dollar cost averaging works exceedingly well for short sale investing.
Dollar cost averaging is an investment method where a constant amount is set aside to purchase whatever amount is available at that sum. So for example, when purchasing stocks an investor might decide to invest $5,000 per month rather than deciding to buy 100 shares per month. By emphasizing the dollar amount rather than number of shares, the investor will tend to purchase some shares at higher prices and some shares at lower prices with the eventual result of an "average" price per share taking place over time.
Real estate investors can do the same and not worry whether or not you are purchasing at the bottom of the market simply set aside a dollar amount which suits your budget to cover down payment, closing costs etc, then spend that amount of money rather than focusing only on the number of homes or properties purchased. What you will notice is that over time, the average price per property tends to drop creating a solid rate of return on your overall investment portfolio.
This modified dollar cost averaging method is a great way to demonstrate a total rate of return on your entire short sale investment portfolio when dealing with banks, lenders or loan officers especially if you are marginal on a specific property. It also assists in highlighting underperforming properties which can be quickly eliminated to increase the total performance of the portfolio as a whole. Simply eliminate the least profitable property and then re-evaluate your portfolio performance...you will often be surprised at how much impact one property can make on the entire performance.
Calculating dollar cost averaging for short sale investments is similar to that of stocks or bonds. Simply make a list of all real estate purchases and the total priced paid then divide by the total number of investments to obtain an average purchase price. Do the same for the selling price.
Alternatives include performing the same calculations including the selling price, average transactional costs associated with each property and even holding fees. Better yet, learn how to set-up a series of spreadsheets to automatically generate this information on each property throughout every stage. It is the perfect way to spot areas in need of improvement or where work (and profits) gets bogged down. If you notice a troublesome area, consider hiring an expert or teaming up with someone. It's a fast, simple and effective manner to showcase your real estate portfolio and demonstrate a positive track record when working with lenders or others. You might also want to check out ‘How to avoid the Top Five Traps in Short Sales Investing'.
Charles Gardner
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Five Favorite Facebook Tips to Build Your Short Sale Empire
Whether you are a novice real estate agent or veteran short sale investor you probably realize the power and influence the Internet holds in building your success. With over 80 percent of buyers beginning their search online, the Internet is a vital tool that few can afford to ignore. However, when it comes to the use of social media applications, far fewer people understand how to put these powerful resources to use for more than just socializing. The fact is, with a little tweaking and adjusting, Facebook and other social media sites have the potential to provide powerful - and free- tools to help with your day to day business or investing needs.
Contrary to popular opinion, Facebook isn't just for teens (fourteens); here are some of the best business applications you can use to build your short sale empire:
1. Demographic Research. This little known Facebook nugget is a fun twist to standard demographic research. Find the Facebook "Insight Corner" to locate advertising information and find out how many people reside in a specific zip code or other identified demographic data.
2. Syndicate Yourself. Set up a Facebook page then import the RSS feed from your blog to the notes application and distribute to all your friends and associates.
3. Send Video Messages. Showcase homes, send out a video blast of recent news or simply make a personalized greeting. It's a simple, personalized and cost effective way to make a big impression with a small budget.
4. Collaborate. Combine Facebook with Google documents to collaborate in a secure environment. Share everything from text to excel spreadsheets with ease while tracking changes, making comments and sharing information.
5. Picture It! Use the mobile application to upload photographs from your cell phone automatically. It's a great way to capture information on prospective short sale properties on the spur of the moment or simply share information with others in real time.
Here's to us old fogies' learning how to effectively use Facebook and other social media including ActiveRain.
Charles Gardner
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Merry Christmas and Happy Holidays,
Charles Gardner
Mortgage rates continued to fall today as the Federal Reserve furthers its action plan to help stimulate demand for homes. Freddie Mac announced that mortgage rates that are hovering around 5.19% this week for a 30 year fixed mortgage haven't been this low since 1979. Today rates were at 5.0%. Earlier this week the Fed cut the federal funds rate to a range of 0 to .25%.
The Big 3 Automakers aren't going to add President Bush to their holiday cards after his comments today. The President noted that the White House is considering an "orderly bankruptcy" instead of a bailout. In a speech at the American Enterprise Institute, the President noted that "Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring...These aren't normal circumstances. That's the problem."
As uncertain economic times continue the media is awash with reports about consumers cutting back and beginning to save for the first time in years. While it may initially seem like a common sense approach to an uncertain financial future, like usual the masses might just have this one wrong. Consider these frightening facts:
Stocks are down roughly 50 percent - worldwide. Mutual funds & Hedge funds are expected to follow a similar downward trajectory. The largest American brand-name companies are down 50% to 80%. Small business owners and suppliers are beginning to experience shrinking lines of credit and the loss of major accounts; even farmers are reporting an inability to borrow money for fertilizers and crops.
Middle-class Americans have watched in stunned disbelief as their 401(k) sink by half while the value of their homes drop by an average of 20 to 30 percent...which actually looks great in comparison!
Commodities are no better: gold is down by 20 to 30 percent of its former high while silver has dropped by 40 percent. Investors are losing money in every asset class including cash! Even oil is down by roughly 70 percent and still dropping.
So, where does it all end? Not even the experts know for sure but one thing is certain; saving is one of the last ways to preserve your wealth during this downturn. With Treasury yields approaching negative returns, paper I.O.U's capable of going to zero and rumblings about "quantitative easing" and the devaluation of the dollar saving might still turn out to be one of most risky things you can do with your money.
Most investors are simply stumped when it comes to trying to figure out where to stash their cash as evidenced by the recent stampede to Treasury bonds. Why does real estate remain an unappreciated investment? Most people heard it on the media and lack the ability to crunch the numbers for themselves.
Short sale investors will do well to stick to the fundamentals; tangible assets that provide for food, safety and shelter. Combined with the use of leverage, tangible assets like real estate retain value even while other investments drop to zero. They will automatically adjust to the new rate of value exchange despite whatever "quantitative easy" or dollar devaluation takes place in the future and unlike other commodities, real estate is able to earn a return in the meantime.
The Bureau of Labor Statistics (BLS) released the December Producer Price Index earlier this week which showed a change of negative 2.2 percent over the prior month. The PPI is not something many short sale investors keep track of but as a leading indicator, it can provide useful insight into future trends likely to be taking place in the economy as a whole and the real estate sector itself six to nine months into the future.
As a general rule of thumb, increasing PPI can indicate future increase in the price of consumer goods and services at a later date while reduced or dropping PPI numbers may indicate lower cost goods or services. However, an important distinction should be made; while increasing PPI numbers are almost always followed by increased consumer prices (inflation), lowered numbers do not always reflect lower prices.
This is due in part to the cost of producing goods or supplying services; once profit margins drop below a given point it actually costs more money to make or provides the goods or services than what is brought in lay-offs, discontinuation of product lines and other shortages are likely to take place instead of further reductions. This creates a unique situation for short sale investors; not only have housing starts dropped dramatically in recent months but even a precursory glance at certain sub-sections indicates startling trends:
* Softwood lumber products fell -2.6 percent
* Crude goods dropped -12.5 percent
* General freight and long distance trucking down by -2.7 percent
* Industrial commodities down by -5.4 percent
To summarize:
1. Rising PPI = Inflation Pressures expected to reach consumers in three to six months until prices reach a level the consumer refuses. Meanwhile, excess demand increases competition as new entrants to market compete for profits against early entrants. Long term outcome is stabilization and/or fall in prices as currently taking place in the real estate market. Notice, although real estate is a large industry with its own tracking mechanism, it is in fact, comprised of a multitude of smaller segments which can be tracked.
2. Falling PPI = Reduced consumer prices then either increased consumer prices or shortages as production falls below consumption levels due to decreased profitability of supplying goods and services. The long term outcome is a rise in prices as demand outpaces supply and/or production. Many economic analysts expect the long term outlook for tangible assets and commodities to eventually rise as the price and production of raw materials fall.
Charles Gardner
How to Find FDIC Real Estate for Sale
While many short sale investors tend to focus on local bank owned properties, don't neglect FDIC asset auctions. Since fewer people are familiar with finding and buying FDIC owned assets, there tends to be less competition and thereby, lower prices. FDIC is often forced to assume the assets of individually failed banks; especially smaller entities which may not have been purchased or assumed by larger banking institutions.
To find out about FDIC owned properties call 888.372.FDIC (3342), (800) 568-9161 or visit http://www2.fdic.gov/drrore/index.asp to perform a property search. FDIC properties are sold "as-is" by sealed bid. It is necessary to complete a "Purchaser Eligibility Certification" prior to submitting bids on certain properties- especially commercial or affordable housing units. The FDIC updates the list of available properties on Monday so make a point of visiting weekly.
One of the biggest "boons" to potential investors is the ability to obtain seller financing for the following types of properties:
* Those selling for $500,000 or more.
* Properties qualified as "affordable housing units"
* Commercial and land properties of any price.
Rates are competitive and further reduce the need for bank financing and are especially attractive alternative for small investors trying to "move up" during a period of tightening lending standards.
Each property will have a specific contact number to the broker or auction house required to find out more information. Remember, all FDIC properties are sold as-is so it is important to understand what repairs, back taxes or other costs may be involved. When submitting a bid package, it is possible to place a "low ball" offer for a property but keep in mind that the highest net bid typically is awarded the property. It is often a good idea to review prior property sales to get a basic idea of realistic prices as well as competition. If you have reason to suspect you may be the only bid, an aggressively low offer may become the basis for immediate equity.
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.
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