Ask The Experts: When Buying a Home Is a Good Idea
Posted By susanne On October 26, 2011 @ 3:53 pm In Today's Home Spun Wisdom
[1](MCT)—With housing prices so low, buying a home or rental property may sound tempting. But is it a good investment? This week, Jonathan Lederer, a wealth management adviser in Sacramento, California, offers his advice.
Q: With home prices dropping and so many foreclosure sales, it seems like a good time to invest in real estate. But what are the risks long-term? How do you compare investing in “real” property vs. something like REITs or other real-estate stocks or mutual funds?
A: With the home prices low in much of the country, some consider residential real estate an attractive investment.
In fact, a recent Wall Street Journal featured an article, “It’s Time to Buy That House,” that said the combination of reasonable price-to-rent ratios and historically low mortgage rates makes this a good time to buy a home or purchase residential rental property.
If you are looking to purchase rental property, I strongly recommend that you first project the internal rate of return (IRR). To do this, you need to estimate the annual rental income and then subtract the annual mortgage expenses, property management fees, property taxes and other costs. When calculating the net operating income each year, be sure to do it on an after-tax basis, as you can frequently deduct rental income, mortgage interest and depreciation expenses.
Finally, you need to estimate the net sales proceeds at the time you expect to sell, then discount all of these projected cash flows back to the present. It would also be wise to determine the expected IRR under several different scenarios, such as strong appreciation, no growth and declining prices.
Once you have forecast your expected return on the rental property, the next logical step is to compare this rate of return with those of other investment opportunities. At present, one can earn an annual yield north of 4 percent on publicly traded REIT funds. Since geographically and economically diversified REITs are highly liquid (i.e., they can be bought and sold online with a click of a mouse), astute investors should demand substantially higher rates of return on residential property, which is illiquid and highly dependent on local economic conditions.
Considering that one can currently purchase certain corporate bond funds at yields greater than 8 percent, I would require at least a 10 percent IRR before purchasing residential rental property.
When forecasting cash flows on a rental property, remember some structural head winds that may continue to pressure residential housing. First, considering the glut of houses-turned-rentals, it is not always easy to find renters in a timely manner. Moreover, it may be difficult to raise rents unless the economy improves substantially.
Finally, the economic situation today is much different than in the early 1980s, when California housing prices began to gain roughly 6.5 percent a year for the next 25 years.
If you would like expert advise and representation in your next move, please contact me.
Suzanne O'Brien
(313) 516-6644
suzanneo@realestateone.com
Monday, October 31, 2011
Tuesday, October 18, 2011
Is Your Loan Modification Stuck?
Is Your Loan Modification Stuck?
Posted By Suzanne On October 17, 2011 @ 3:56 pm In Consumer News and Advice,Finance and Economy,Real Estate,Real Estate News,Real Estate Trends
If you’re on the verge of losing your home, or you know someone who is, then you also know about the long, bureaucratic process involved in applying for a loan modification from a lender. The most common approach is to apply under the new Home Affordability Mortgage Program (HAMP), but lenders also accept modifications from mortgage holders because lenders really don’t want to take the house – they just want their money.
In many cases, however, the approval process takes longer than many homeowners can afford. But one expert believes it doesn’t have to be that way, and that there are solutions for homeowners whose applications seem stuck in the mud.
“Applying for a loan modification can be an extremely stressful process,” said Stephfan Nurse, CEO of Consumer Education [1], makers of mortgage reduction software designed to help people through the modification process. “Even if you send in your documents and your lender tells you everything is okay, you may still have a great amount of anxiety because you have no idea what the lender is doing with your file. You may not know what the next step is and how long it takes to move through each step in the process. Your lender may tell you what the next step is, but you may not understand why it will take so long. There are reasons, however, why the process can get stuck, and there are ways to move that process along, if you understand what goes on behind the scenes.”
Nurse’s tips for making the process smoother include:
• Account Numbers – It often happens that when you fax your paperwork to your lender, the lender either says they lost your paperwork or they just didn’t receive it all. This isn’t because they are incompetent. It’s because they receive thousands of faxes each day, and they use an image scanning technology to capture them all and place them in the appropriate file. In that system, a cover sheet that has your account number on it will get placed correctly, but the following sheets that lack your account number can be easily misplaced. The solution is to put your account number on every page of your paperwork, so they have a better chance of placing all your paperwork in your file.
• Complete the Paperwork – When your file gets assigned to a document manager, typically about 30 days after you first applied for the modification, the document manager’s job is to check to make sure all your required documents are ready to be submitted to the negotiator/specialist for review. If you have an incomplete file, even if you’re missing just one single required document, the document manager will note your account as having an incomplete file and move on to the next file to review. At this point, a generic letter is automatically mailed to your home requesting the additional information your file lacks. This letter can take up to two weeks to get to you, and then another two to four weeks before they look at your updated information. The key is to never send an incomplete package to your lender. It can lead to a delay or even a flat out denial.
• Follow Up – Finally, follow up every week with your lender to make sure all the documents they have are up to date. Don’t worry about being a pest. After all, it’s your house on the line if things get stuck in neutral. If you do this consistently, you will avoid getting caught in the delay cycle.
“The process is like any other, and it can be rife with mistakes and bureaucratic snafus,” Nurse added. “But if you take the steps to reduce the opportunities for error, your application can move through the process much faster and you’ll have a much better chance at being approved.”
If you would like expert advise and representation in your next move, please contact me.
Suzanne O'Brien
(313) 516-6644
suzanneo@realestateone.com
Posted By Suzanne On October 17, 2011 @ 3:56 pm In Consumer News and Advice,Finance and Economy,Real Estate,Real Estate News,Real Estate Trends
If you’re on the verge of losing your home, or you know someone who is, then you also know about the long, bureaucratic process involved in applying for a loan modification from a lender. The most common approach is to apply under the new Home Affordability Mortgage Program (HAMP), but lenders also accept modifications from mortgage holders because lenders really don’t want to take the house – they just want their money.
In many cases, however, the approval process takes longer than many homeowners can afford. But one expert believes it doesn’t have to be that way, and that there are solutions for homeowners whose applications seem stuck in the mud.
“Applying for a loan modification can be an extremely stressful process,” said Stephfan Nurse, CEO of Consumer Education [1], makers of mortgage reduction software designed to help people through the modification process. “Even if you send in your documents and your lender tells you everything is okay, you may still have a great amount of anxiety because you have no idea what the lender is doing with your file. You may not know what the next step is and how long it takes to move through each step in the process. Your lender may tell you what the next step is, but you may not understand why it will take so long. There are reasons, however, why the process can get stuck, and there are ways to move that process along, if you understand what goes on behind the scenes.”
Nurse’s tips for making the process smoother include:
• Account Numbers – It often happens that when you fax your paperwork to your lender, the lender either says they lost your paperwork or they just didn’t receive it all. This isn’t because they are incompetent. It’s because they receive thousands of faxes each day, and they use an image scanning technology to capture them all and place them in the appropriate file. In that system, a cover sheet that has your account number on it will get placed correctly, but the following sheets that lack your account number can be easily misplaced. The solution is to put your account number on every page of your paperwork, so they have a better chance of placing all your paperwork in your file.
• Complete the Paperwork – When your file gets assigned to a document manager, typically about 30 days after you first applied for the modification, the document manager’s job is to check to make sure all your required documents are ready to be submitted to the negotiator/specialist for review. If you have an incomplete file, even if you’re missing just one single required document, the document manager will note your account as having an incomplete file and move on to the next file to review. At this point, a generic letter is automatically mailed to your home requesting the additional information your file lacks. This letter can take up to two weeks to get to you, and then another two to four weeks before they look at your updated information. The key is to never send an incomplete package to your lender. It can lead to a delay or even a flat out denial.
• Follow Up – Finally, follow up every week with your lender to make sure all the documents they have are up to date. Don’t worry about being a pest. After all, it’s your house on the line if things get stuck in neutral. If you do this consistently, you will avoid getting caught in the delay cycle.
“The process is like any other, and it can be rife with mistakes and bureaucratic snafus,” Nurse added. “But if you take the steps to reduce the opportunities for error, your application can move through the process much faster and you’ll have a much better chance at being approved.”
If you would like expert advise and representation in your next move, please contact me.
Suzanne O'Brien
(313) 516-6644
suzanneo@realestateone.com
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