Archive for September, 2009
Buying Investment Property in Folsom
September 21st, 2009 categories: Folsom CA, Investors, Real Estate, Tax Incentives
Seven Pointers for Success
Folsom is a great place to live and an even better place to own an investment property evidenced by the numbers of first time investors who came through my open house this past Sunday. Many are just starting their investigation and some don’t really know what to expect so I’ve complied the answers to the seven most common questions about real estate investing.
1. How important is location? Investing in the best location you can afford will dictate the kind of tenants you will attract, and in turn, how much rent you can charge. More desirable neighborhoods appreciate more over time and are less susceptible to the ups and downs of the real estate market.
2. What about repairs? Expect to spend some money on repairs and resist the urge to upgrade. Your thinking should be based on an investment NOT what you would want if you were living there. The rule of thumb is light, bright and clean and remember you will need to factor in new paint and carpet every few years.
3. How do I avoid capital gains? There is a tax rule (1031) that allows for investors to exchange like properties and avoid capital gains so long as you don’t take any profit from the sale. This will allow you to build a nice real estate portfolio if that is your retirement strategy. For most small investors real estate is a buy-and-hold investment and a time frame of at least seven to ten years will allow you to ride out any swings in the market and provide a nice cushion for your retirement. Leave the flipping to the seasoned vets and think long term.
4. What are the costs involved? Calculating the property taxes, insurance, utilities, maintenance, and repairs are considered the cost of doing business…more than just the mortgage payment. Vacancy rates vary but if you buy smart you should be able to figure in a conservative 5% which is standard in the industry.
5. Are fixers a good deal? Buying the worst house in the best neighborhood can work to your advantage. Renters look for better schools and neighborhoods and are less picky about floor plans. Deferred maintenance is the usual cause of property repair so if you have the cash on hand and are not afraid of a little work, you can increase your value by some sweat equity. Don’t skimp on the major repairs though, always hire a licensed contractor.
6. Can I do the credit checks myself? Pay the extra money to run a full background check when screening future tenants. I can’t stress this enough! Running a credit check will give you the basic information that is available electronically but doesn’t address issues that can only be found by a phone call or letter. Some states don’t make information available electronically so you won’t know if they’ve got child support or other obligations that could impact their ability to pay rent.
7.Where do I learn about landlord rights? The Dept. of Consumer Affairs and HUD websites have everything spelled out. Learn about the eviction process and other potential issues so you can do things right, saving time and money. Remember the goal is to find tenants that pay the rent on time, leave the property in good condition, and don’t cause problems with the neighbors. If you would like help finding investment property in Folsom please email me for more information.
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Condo Sales Activity in Folsom CA
September 5th, 2009 categories: Folsom CA, Real Estate, Sacramento Co. Real Estate
Short Sales Dominate Market
Condominiums are a great way to get into the housing market and take advantage of the $8000 tax credit and it appears that a lot of people are thinking along the same line. As of today, Sept. 5, 2009 there are 47 condominiums for sale in Folsom with 39 in some sort of available status. The other 8 are currently pending sale which means that barring some catastrophe the property should close escrow within a reasonable period of time. In the previous market “reasonable” meant approximately 30-60 days. This market shows the longest days on market (DOM) for condos in Folsom at 846 days…certainly gives new meaning to a long escrow doesn’t it?
Another interesting statistic is that of the 47 condos currently listed there are 9 REO’s (bank owned) and 20 in a Short Sale status. The average DOM is coming in at 177 so you can see how short sales are impacting the market and extending the average time on the market. Last month in Aug. 2009 there were 6 closed sales for condos in Folsom and 50% of those took longer than 120 days to close. Kudos to those patient people because they paid on average $149.14 per sq.f t. for a condo just 3 years old in Folsom. They averaged a 1470 sq.ft. home and paid an average of $220,000…not bad for starters!
There is a rule of thumb in real estate and that is: Never sell your first home. The reasoning is that your income will increase so affording another property later on is highly likely. By keeping the first home you diversify your retirement income, can utilize the property for additional funds should the need arise, and have someone else paying that mortgage. With that in mind, a condo is the perfect vehicle to invest in. It provides shelter, tax write-offs, future liquidity and the best part is that you don’t have to maintain the property once you move out. If you find that you like Folsom and want to know more about condos please give me a call and I’ll be happy to assist you.
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Lenders Wise to Short Sale Flippers
September 1st, 2009 categories: Finances, Real Estate, Short Sales
Don’t Fall for this Scam
Short sales are here to stay and many agents who previously wouldn’t touch them are realizing they now ARE the current market. For those of you who do not know what a short sale is I’ll briefly explain: When a lender agrees to take less than the amount owed on the loan or “short” from the buyer. The seller does not receive any money, is not liable for the difference and the buyer gets the house free of any liens. My blog today is focusing on the lenders and their perspective when it comes to approving a short sale and transferring the title to the new buyer.
There are a number of “investors” who are purchasing short sales but never intend to hold on to the property. There are also a number of desperate real estate agents who are not making it and have agreed to work with these investors. Let me explain how they set up these fraudulent transactions.
Real estate agent A lists a home for sale advertising it as a short sale. Investor Joe submits a low-ball offer with the listing agent to the bank. The agent continues to advertise the property for sale with the intent of finding a buyer who is willing to pay more than the investor. The investor gets an approval from the bank, sells the property to the new buyer and makes a tidy sum on the difference. The only problem with this scenario is that it’s fraud. Don’t forget the seller signed a contract to pay back the loan therefore any money made from the sale of the home is rightfully due to the bank until the loan is paid in full.
The interesting part is that the banks are finally getting hip to what is going on and including language on the approval letters against this practice. I just received one such approval for a short sale and the lender clearly outlines how the transfer of title is to be conducted and prohibits any third parties from receiving any funds. This implies that if a seller is aware of any such transaction that they can be held liable for fraud. That’s a nasty little word and in all honesty I don’t ever want to be involved in any litigation that includes that word.
So how do you beware of unscrupulous agents? The first rule of thumb is to check out the agents license with the Dept. of Real Estate (DRE) and see if there are any previous disciplinary actions against him. You can also go to the local real estate board and check for complaints against the agent. If the agent is not a member of the local board then you have no recourse should he do something unethical.
Remember that a short sale is STILL A SALE and you are hiring someone to represent you in this real estate transaction. Your agent should be able to tell you what to expect and explain the process clearly. If they seem a bit fuzzy then you know they are not experienced. If they tell you they have an investor they are working with, ask them to explain the process to you, and if it sounds like what I just outlined then beware of fraud. You are hiring the agent to represent you so cover yourself and hire someone with integrity to represent your interests. The old adage is true: You can delegate responsibility but you can’t give it away.
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