Kathy Kipp

Now that the banks are releasing their stock of REO homes to the greater Houston market, savvy homebuyers have some shopping to do, whether you are looking for a home for yourself or investment properties to rent. Some of the rules are a little different if you are seeking your dream home or a place that will be a rental.

If the home is for you, you may know what you want. You know how that extra large family room will especially suit you family and how the alcove off the second bedroom will work great for a little office for you. Even if the place needs renovation, you have a vision for the finished product. If the place is in a neighborhood that is convenient, safe, and desirable to you - go for it.

If the place will be investment property, your goal should be to find a place that you can easily rent, or down the line, resell after you have fixed it up. Even if you wouldn't want to live in the home personally, it might work out great for a tenant or the next buyer. If you are aiming to rent out the home, make sure to ask your Realtor® how many other foreclosures and bank owned homes there are in the neighborhood. That will give you an idea of how much competition you'll have when you are looking for a renter.

Needless to say, the sale price has to be right - including any add ons like back taxes and your expected cost of repair. Obviously, most bank owned properties need some work that ranges from some relatively minor painting and cleaning to major rehab work. Whether you are buying for yourself or investment purposes, you don't want a home that requires so much work that the price of the finished product will be out of whack with neighborhood values. If you buy the home for yourself and plan to live there for 100 years, you might to sink money into features that your family will like, but you probably won't see much return at sale. For homes you plan to turn over, you should be more focused on the rate of return.

You can expect to sink $15-20,000 into cosmetic renovations on an investment unit, so make sure to think of the whole picture when you're buying. Experts say that you should plan on charging 1% of the purchase price in rent each month, but that is not realistic in most markets. You should talk to your Realtor® to get a good handle on the sale or rental market. Spending $20,000 will mean you need to need to charge $200. Will an extra $200 make the rents too high in the area?

Getting an inspection done prior to making a purchasing decision is a absolutely necessary. If the home is not accessible, scope out the neighborhood and talk to the neighbors to see what they know about the condition of the place. In any case, make sure that your Realtor® writes an escape clause in the contract for you in case the inspection uncovers major damage.

With some many homes offering both the potential of being either a lucrative investment or a money pit, having a good Realtor by your side like Kathy Kipp is essential. She knows the Pearland real estate market and can guide to the best deals in bank owned and foreclosure homes.

A couple months ago when President Obama announced his housing recovery plans, he talked in terms of "responsible" home owners who need help to stay in their primary residence. He did not want to help "speculators who took risky bets on a rising market and bought homes not to live in but to sell."

His intent was admirable, as homeownership is a valued cornerstone of the American way. To imply that all other property owners were "speculators" and to make that a dirty word was unduly harsh. In a country where most people start out renting and where some people happily rent all their lives, investment in rental property is an honorable tradition - and a necessity. Since few people buy investment property as a charitable enterprise, buying a property at a low price, rehabbing it, and hopefully reselling it or renting it for profit make sound business sense. Investors are necessary to make homes available for all who need them.

To be fair, there are areas of the country, like Las Vegas and the whole state of Florida, where investors rushed in and bought up property at bargain prices in hopes of selling them at a profit to retirees and working families. In Cape Coral, some even acquired their house-flipping strategies from "Millionaire University," which led to a doubling in housing prices in Cape Coral between 2000 and 2005. Most of these properties were shadily financed, so these investors not only played a major role in housing inflation but in skyrocketing foreclosure rates as well. By 2007, there were 1,900 foreclosures. By January, 2009, there were 24,000.

The group of investors involved in melees like this do not comprise the bulk of investors. Data from 2008 indicates that investors made up only 13% of foreclosures nationwide. In fact, according to a study on second homes and investment purchases done by the National Association of Realtors (NAR), the investor segment was one of the strongest in the real estate market in 2008. How does the NAR profile this "strong" market segment?

• Investors comprised 21% of the market, down from 28% in 2007
• 42% paid cash for their units vs. 15% of buyers of primary residences and 31% of vacation home buyers
• They paid a median purchase price of $108,000 vs. $196,000 for buyers of primary residences and $150,000 for vacation home buyers. This is down from $189,000 back in 2004, when vacation home buyers when purchasing $204,000 homes
• 54% of investment purchases were within 20 miles of the investor's residence, while 67% ere within 50 miles
• 67% were detached single family homes, 22% were condos or duplexes, 8% were condo or rowhouses
• 1 of 6 purchases was an REO or other distressed situation purchase
• They tend to be about 10 years older than the average primary residence buyer (47 vs. 37)
• Their average income ($85,000) was not higher than other buyers, though second and vacation home buyers averaged $97,000

At the moment, despite some encouraging housing news, foreclosures are still rising. The homes that will come on the market from these foreclosures will further swell the stock of bank-owned homes throughout the country. Some of these homes offer great opportunities for first time homebuyers and others willing to accept a challenging property often in need of repair in exchange for a great deal. Buying this type of home is not for everyone. In reality, many REO homes are being bought by investors - individuals and groups of varying sizes - who are willing to take a risk, rehab, and rent out the property. This is also the American way.

Will investors, even good cash-paying stable ones, stabilize housing where buyers in search of affordable housing may not always be able to? Skeptics say the many investors will just sell the homes when the market turns around, which will once again add to the pool of homes in the market. The likely reality is that many renters, perhaps temporarily displaced from homeownership by foreclosure, will be ready to buy again. In the meantime, investors are improving the housing stock and making rental homes available to families.

Pearland investors: Great deals await you in the local market place. Kathy Kipp knows the area and will show you the best in foreclosures and REO properties. I can even help you lease and manage your Houston-area rentals.

A short sale is defined as the sale of a home in which the proceeds fall short of what the owner still owes. Lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a foreclosure and the owner is able to pay off the loan for less than what he owes. Why do the lenders do this? Because lenders will lose more if the property goes into foreclosure.

There are three stages in the foreclosure process. They are pre-foreclosure, foreclosure and post– foreclosure. The pre-foreclosure stage is the only stage where a seller wants to be. With the help of a Realtor that is trained in short sales, the homeowner will be able to purchase another property in as little as 18 months, with a good rate!

Remember, lenders do not want your property. With over 1 million properties expected to be in foreclosure this year, the difference in losses to be sustained by lenders between a negotiated short sale and a fully executed foreclosure is estimated to be in excess of $50 Billion. Contact me so I can help you negotiate with your lender, therefore making the transition smoother so you can get on with your life.

Many homeowners in Texas can no longer make their house payment because of various reasons and feel their only option is letting the home go back to the bank; otherwise known as foreclosure. However there is another option, and that is called a Short Sale. If you are facing difficulties, this could be an option because it would allow you to let go of your home without ruining your credit.

A short sale is when an experienced realtor negotiates the selling price of your home with your lender. Most times the bank will accept less money and forgive the remaining debt. Choosing a short sale instead of foreclosure is a quicker process and is less expensive. Also, foreclosures look worse on your credit because the financial institution has repossessed the home from the owner due to nonpayment of mortgage obligations. Short sales are arrangements where the bank and homeowner work together to sell the home, with the help of a realtor experienced in short sales.

If you need more information or have more questions, please contact me.

During December of last year, total sales for single family homes in Houston dropped 17.3 percent over the previous 12 months. During the that year, the average sales price for homes increased only one percent, to $208,266, over the previous year according to information found in the Houston area MLS.

Why weren’t more people buying homes in a strong buyer’s market? Even with generally lower housing prices and low interest rates, potential home buyers are becoming more and more anxious. Their fears have been fueled by incessant media coverage of a falling stock market, increasing job losses and rising foreclosure rates. Afraid to commit themselves to a mortgage, many potential home buyers are opting to take the safe road, putting their money aside until better times. Instead of buying homes, many Houston families have chosen to rent.

Figures released in December show that in the Houston metro area, rental leases for town homes and condominiums were up 24.6 percent from the previous year. For single-family homes the percentage for leases was even higher, rising an astounding 26.2 percent. Part of the increase was caused by Hurricane Ike, but most of the growth in the rental market can be attributed to nervousness about the economy.

For investors, this may be the best chance in the foreseeable future to invest in residential rental property, possibly the next big thing in investing. Economists are expecting the economic recovery to be slow, which means that the residential rental market should remain strong. Smart investors who take advantage of the current soft housing market and buy wisely can end up paying a relatively low price for their residential real estate investment as well as profiting from the nearly historic low interest rates currently available. Many investors who buy in the current market will benefit with a solid income stream as well a serious tax benefits.

Seasoned investors will tell you not to go this alone. Whether investing for the first or hundredth time, a real estate agent with experience in investment opportunities should be every investor’s teammate. While there’s money to be made, there are pitfalls as well. Your real estate agent will be able to find properties you can’t find on your own, and can steer you through problems when they arrive.

Further information about the current Houston area real estate market from Vicki Fullerton, chair of the Houston Area Realtor’s™ Association can be found at Houstan Association of Realtors, or contacting Kathy Kipp.