Archives for February 2015

Financing 2015 – A Credit Crunch Update

Credit will continue to remain tight

Since the financial crisis of 2008 and its aftermath, numerous banking laws were enacted to protect consumers. In so doing, the overall effect was to create an extremely tight credit market – especially for property investors. While federal banking rules have helped stabilize a U.S. economy that was in freefall at the time, property investors, most notably novice rental property investors, as well as younger ones investing in real estate without the credit experience and background, have fallen prey to the huge tightening of credit mortgage markets. Basically, they have been excluded from the leverage abilities for investment opportunities that older and more experienced property investors with track records can take advantage of, and secure from lenders. Well, you can now add to the excluded group those investors in more rural areas of the country. This is because banking regulations remain in place, even for the smallest of community banks across the country.

The rural area disadvantage

According to a recent report from HousingWire.com ( “Half Of All Rural Banks Don’t Qualify For QM’s “Rural” Exception,” HousingWire.co, January 27,2015, by Trey Garrison), local small lenders in rural areas around the U.S. , despite their tiny size relative to their big-city counterparts, have the same regulations placed on them. The net result? They simply have gotten out of the residential mortgage lending business, en masse. According to the article, “three-quarters of community bankers surveyed say that new mortgage regulations are keeping them from making more residential mortgage loans in their communities, according to the Independent Community Bankers of America.” Mr. Garrison goes on to say ““ICBA’s 2014 Community Bank Lending Survey validates what community banks have long predicted—that new restrictions on mortgage lending are reducing much-needed access to mortgage credit for many Americans,” ICBA President and CEO Camden Fine said.” “The survey also shows the avalanche of new regulations coming down on community banks from Washington is having a negative impact on their lending.”

And the survey says…

Highlights of the above-referenced survey include: “73% of community bank respondents said regulatory burdens are preventing them from making more residential mortgage loans; significant percentages of community banks are no longer active in the residential mortgage market, are considering an exit from this line of lending or are exiting the market; 44% said they originated fewer first-lien residential mortgage loans in 2014 compared with the year before; half of all rural banks said they do not qualify for the QM rule’s “rural” exception, which demonstrates that exemptions from the standard are too narrow, limiting access to credit for consumers who need it.”

The bottom line

And what do you suppose the effect has been on rural property investors because of this? You guessed it! Less mortgage lenders means less competition by area banks. And when you have less competition, interest rates can naturally creep up…but only in these rural areas. It’s like a double whammy: first, there are less opportunities for rural investors in a tight credit market to turn to for applying for their rental property mortgage loans. (And this can apply to conventional or FHA loans.) And large lenders, like Chase mortgage, for example, may not be lending in extreme rural areas that they don’t geographically cover. And secondly, for those rural banks that are making mortgage loans to investors, less competition means less incentive to keep interest rates down. If they know there are half as many mortgage lender options in a particular community, interest rates are certainly going to creep up amongst the smaller pool of existing mortgage lenders. And that means that rural property investors will be paying more, on average, for their debt retirement than their city and suburban investor counterparts. As a rental property investment strategy, keep this potential increase in mortgage expense in mind when crunching numbers, as you search for new property acquisitions.

photos courtesy of trustdeedinvestment.org, psdgraphics.com, flickr.com, todaysfacilitymanager.com

The Sheer Fun Of Tax Grievance

Grieving your taxes is so simple!

When searching for investment property, it’s always important for you to review the asking price relative to the current assessed valuation on the property. If the assessment is close to the asking price (within ten percent), then you’ll have a quick reading of the appropriateness of the seller’s asking price: namely, it will be in line, and your negotiating will not deviate too far afield. (This doesn’t mean you shouldn’t make a lowball offer – by all means, be my guest if that’s one of your acquisition strategy techniques. Just know there will be a low probability of “stealing” the property.

However, if the assessment is significantly lower than the asking price, you should be wary about what could possibly be wrong with the property. It’s a question to be asked of the seller and his real estate agent, if he has one. Maybe the property had a major winter pipe burst and subsequent flooding at some earlier date, and the municipality adjusted the value of the property downwards to reflect the damage (assuming it was never repaired). Regardless, always make a point of asking what the reason for the differential could be before you make an offer.

When the assessment is higher…

The third possibility when reviewing asking price compared with assessment is that the assessment is significantly higher than the asking price. In this scenario, watch out! Besides asking the seller why such a large deviation exists, also ask why the seller never grieved his real estate tax (asked for a reduction in the current assessed value that the town assessor placed on the property). I have seen many occasions where sellers just don’t bother to ask for a tax reduction by grieving their taxes – usually out of sheer laziness and stupidity. This is unfortunate, since it cuts into their bottom line significantly year in and year out, with their continually paying a higher amount of taxes than they need to pay. Make sure it doesn’t cut into yours if you acquire the property.

Tax grievance 101

When you make an offer and close on a property with a final sales price much lower than the assessed value, you in effect must take on the duty of grieving the taxes. Interestingly, “grieving the taxes” on a property is a misnomer. What you’re really doing is grieving the assessment. The taxes on any particular property in a municipality are solely based on the assessed valuation of the property. And while each property in a town may be assessed at completely different values, the tax rate will always be uniformly the same for every property owner.

The time consuming process

Grieving your taxes is not difficult, but it can be time consuming. And it always takes a fair amount of time to realize the benefits of “winning” a real estate tax appeal that provides you with a property tax reduction. If you purchase an investment property and know you’ll need to grieve taxes on it, don’t wait. The day after you close on the property, you should go right to your local town assessor’s office, and show them proof of the sales price from the closing documents. On some occasions, assessors may agree with you that the difference in assessment and sales price is so overwhelming, they may be inclined to lower your assessment without the need for a formal grievance procedure (which is a court function).

In this instance, they may throw out a new assessment valuation to you for your approval. Be careful – they are negotiating with you! And you may not even be aware of this. The number they throw out will probably be somewhere between the sales price and the current assessment. It will be up to you to decide whether to accept it, throw out another “negotiable” number to the assessor, or move forward with the paperwork for a formal tax grievance. My advice: shoot for a figure within ten percent of the actual sales price. If you get it, be done with it, and be happy with what this will mean for your ultimate property tax reduction.

Time for paperwork

If you and the assessor can’t agree on a number, or if the assessor is a stickler, you’ll need to fill out the paperwork the assessor will supply you with for the formal tax grievance. The assessor will tell you when their local municipality “tax grievance day” is, and you’ll need to have filed all your paperwork before that date. (So if you buy a property in December and the tax grievance day is in June, that’s tough luck for you. You’ll have to wait, since, like Christmas, the day only comes but once a year.)

Besides standard data to be filled out on grievance forms, sometimes the sales price isn’t enough. If you make improvements to the property, you’ll need to do your ”homework” and look to supply other, independent professional opinions as to the most current value of your property. Examples of independent professional opinions that would be appropriate as tax reduction services, would be an outside appraisal (which you would have to pay for) or a local real estate broker’s opinion of value or Comparative Market Analysis (CMA). (They will create a CMA for free in order to ingratiate themselves to you for a hoped-for future representation – either as a property manager, exclusive agent for finding tenants, and/or agent when it comes time to sell the property).

Filing your tax grievance

Armed with his independent professional opinion on the current value of your investment property, you’ll be able to confidently file your grievance paperwork – which is your real estate tax appeal. At some point (usually within a month or two) after tax grievance day, you’ll receive notification of your tax grievance court date. On the appointed day, you will go in and represent your valuation to the court grievance judge (don’t worry – they will usually be an independent attorney – not a criminal case judge). And the town assessor will represent the town’s opinion of the value of the property. It will then be up to the judge to ultimately decide the fair market assessed valuation on the property. This will take several more months, and you will be notified of his decision by mail.

Using the time factor against assessors

It should be noted here that many assessors don’t have the time or wherewithal to attend grievance court hearings for every tax grievance in their municipality. So what do they do? Negotiate ahead of time with you. Many times you’ll get a call from the assessor, probably within a few days or a week ahead of the appointed court grievance date. And they will begin that negotiation I mentioned earlier in this article. Interestingly, at this late a date, you have the upper hand in the negotiation. You know they don’t want to go to court. And times running out. In this scenario, you can probably negotiate a number for valuation of the property within five percent of the sales price. Or in the case of your having made subsequent improvements to the property, within five percent of the professional opinion of valuation you already provided in your filing papers.

The long wait…

Whether you negotiate the new assessment, or go through the process all the way and have a judge decide the valuation, it may take yet another full year before the new assessment “hits the rolls,” or is recorded and actually comes onto the assessment rolls of your town. Only after this new assessment is actually recorded by the town and appears on your tax rolls, can you begin to realize the tax savings of a reduced tax grievance assessment. However, the savings will show up every year from there on – tax reductions that give a great boost to your expense savings, yielding you a higher net income on your investment property, like a gift that just keeps on giving.

photos courtesy of kiplinger.com, mdpropertytaxspecialists.com, propertytaxreduction.blogspot.com, blogfinger.net, toh.li, ladylitigator.wordpress.com, kapitall.com

Property Investing Marketing Tip: Staged Homes Sell Faster

Property staging basics

Staging an investment property can help potential buyers visualize what it will be like

when they move in to your property. As buyers look at similar homes in a neighborhood, this will give your property a leg up on the competition. Seeing the true potential of how a home is laid out with all the furnishings included is a major advantage compared to your competition. Basically, house staging allows you to show off the property‘s best features, and display them in their best light. And ultimately, it will yield you a quicker sale at a greater price. And that’s the real bottom line – maximizing your net proceeds.

Home staging tips

House staging can make a small room feel more open with just a few simple tricks. A professional stager is used to staging a house for sale. They traditionally look at

a property’s appeal through the eyes of the buyer, and will recommend ways to make your investment property look better for buyers. The stager helps buyers visualize themselves living in your house. Also, staging a home for sale includes trying to increase the property’s overall market appeal to a wider range, and therefore, pool of buyers. Naturally, it’s a good way to have your just-renovated property look very homey. In order to obtain top dollar for your investment when it comes time to sell, you want to make your house look as light, orderly, open and inviting as possible. And home staging is how best to do it.

Home staging jobs

The job of any good home stager is part of the overall marketing strategy to sell your investment property for top dollar. Staging can be very elaborate (for high-end homes), or very simple (for smaller, or low-end properties). A stager will suggest their ideas for how best to exhibit the space. For antique homes, staging may mean using older style furniture. But for newer homes, more modern furnishings would be the way to go to bring out the best look of the entire house.

How much will it cost?

Staging costs vary greatly, based on the size and style of the house. For starters, a stager will do a walk-through of your investment property, then generate a report with their recommendations. The cost for the analysis and report can range from $100 to $400, on average. Then you would pay rental fees for furniture and accessories that will be brought in, set up and staged to the stager’s specifications and trusted eye. This is where things can get pricey, and you can allocate somewhere between $3,000 and $10,000 to properly stage a vacant property, depending on the house size and length of time it will take to sell the property.

Choosing a good stager

It’s best to look for stagers in your area who really know interior styles that are right for your particular house and rehab work completed. Be sure to check out their prior work, especially in the same neighborhood as your investment property. You can ask your local realtor for referrals. Most realtors have created relationships with stagers in their area, and tend to recommend them the most.

photos courtesy of blogs.starbulletin.com, peoples1.com, orlando-mortgage.org

Best Rental Property Investment Strategies: Landlording Now!

Investment opportunities abound

Indications are that this year is a great time to begin your real estate investing activities. Investment opportunities in rental property continue to abound. In addition, current home ownership levels as a percentage of overall U.S. population continue to dip. Even with the advent of the current economic rebound across the country, renting is still preferred over home ownership…even when home ownership affordability has continued to get better. According to recently released statistics from the National Association of Realtors, with home prices increasing slightly the last two years in a row nationwide, coupled with relatively historic lows in mortgage interest rates, it is now an excellent time to become a home owner.

Renter insecurity as a market force

As a percentage of average per capita gross income, monthly costs of home ownership (with mortgage debt) are running about 16 percent of gross income, compared with 21 percent a year ago. Clearly, most new home buyers want to stay on the sidelines, preferring to rent instead. This is most probably due to their feeling insecure about their job situation, or the stagnation in their gross incomes over the last few years. Regardless, investment property becomes much more attractive when renters continue to rent – and rents keep rising in the process.

Now is the time – calling all landlords

According to an article posted on MainStreet.com, now is a great time to become a rental property owner. In the article (“For Passive Income, It’s a Good Time to Become a Landlord,” MainStreet, by Brian O’Connell, 2/3/15), Mr. O’Connell points out that “this is a good time to change your life and buy a rental property…a key part of wealth creation is creating passive income — money you earn while not actively working for it, and that’s where being a landlord can help. The idea is simple: Buy a property, rent it to reliable tenants and let them pay down the mortgage for you until the home is paid for. At that point, the entire value of the home is yours, along with any rent you earn after the mortgage is paid off.”

Do you have the right stuff?

Mr. O’Connell goes on to sum up what is primarily necessary to get into the real estate investing business: “It really does take the right stuff to be a great landlord. An entrepreneurial spirit, a hands-on, can-do approach and some good old-fashioned business savvy (along with time) are the ingredients in mastering the rental property game. And right now, it’s a game that’s paying off handsomely for the right players.” I think special attention needs to be heeded to his choice of words when he says “the right players.” This requires a fair amount of personal self-reflection in order to succeed.

And the right temperament?

In essence, this writer’s point is that it takes the right temperament and personality to be successful when real estate investing in rental property. Will you be the property manager for your investment property? if so, be prepared for those late-night emergency calls and some difficult tenant situations, not to mention the chore of screening tenants. Or, you can pay a property management company to do these activities for you. Just be prepared to spend between ten and fifteen percent of your gross monthly income (whether your installed tenants pay or not). It’s your choice – but be sure you run the numbers as to the feasibility of choosing the property management company route. Either way, you’ll want to maximize your investment opportunities now while, as Mr. O’Connell points out so very succinctly, “this is a good time to become a landlord.”

photos courtesy of houstonmortgagetexas.com, zillow.com, lawofficewalterjennings.com, tenantscreeningblog.com, anchorloans.com