Black Friday Shows Signs of Hope

Mid-Day Market News & Commentary by Chris McLaughlin, November 28, 2008
http://www.shortsalesriches.com/welcome.html

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Retail stores on Black Friday aren’t the only places you can go to get a great deal! If you watch this amazing video … about an hour into it you’ll find out a way you can save, too! The feedback from those who watch this video is nothing short of AWESOME. It features an investor we’ll name Mr. X who is making more money now than ever before! Go now to see it!

http://www.shortsalesricheswebinar.com

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From all the news accounts you’d now think they’ve been lying to us, as shoppers slammed retailers this morning and came out in droves to get deep discounts on holiday items. But many that were questioned by the media in lines were clear: they are spending a lot less this year. We’ll have to wait a bit to hear from the credit card companies how many purchases were made … but from the initial look of things it might not be as bad as everyone thought. We’ll find out soon!

And the U.S. government isn’t the only democracy not buying up banks. The Royal Bank of Scotland announced that the British government will take a 57.9% stake in the bank. The government provided nearly 15 billion pounds to the beleaguered bank, and is expected to invest another 5 billion pounds through a preferred stock sale.

Now on to our real estate investor education section …

Big Government Leads to Big Cost: 40 Percent of the Cost of a Home Before Taxes!

Short sale investors and those sitting on the sidelines waiting for the “perfect time to buy” would do well to take notice of the current economic policies of the nation. For those that haven’t yet noticed, “bail-outs” are big business…in fact, it seems nearly every big business in the nation is standing in line waiting for their share. The same goes for state and local districts throughout the nation as they scramble to compensate for lower spending and fewer taxes.

What many people forget is that sooner or later all the bills must be paid by someone; and that someone is typically the average citizen. The end result is always the same; “hidden taxes” in the form of fees, assessments and other costs that can drive up the price of a home even while the market rates remain more or less unchanged.

In former entries we have covered the impact of inflation and interest rates on the total cost of real estate with the conclusion that now is the right time to buy. If that wasn’t enough to convince you take the plunge with short sale investing then consider this; state and local governments (not to mention federal) need to make up budget deficits any way possible. One of the most popular ways throughout the history of this nation is to increase the fees and other costs associated with building a new home. In fact, the cost of compliance often results in less – rather than more- affordable housing options for years to come. Here are just a few of the ‘hidden” taxes, assessments, fees and other expenses likely to increase faster than the rate of inflation in coming years:

1. Increased time and cost of building permits. Longer lead times and complexity also results in increased cost to the builder and eventually the buyer.

2. Updated building code requirements including new energy efficient and eco-friendly regulations that can add hundreds or even thousands of dollars to the cost of a home.

3. Higher per square foot land/lot development including Higher impact fees.

4. Mandatory infill policies.

5. Higher property taxes.

6. Reducing parking allotments.

7. Increased per unit fees associated with lower density developments.

8. Mandatory ADA/physical barrier compliance changes.

Lest you think these types of fees don’t make a significant difference, recent research conducted by the University of Washington found housing regulations in Seattle added an average of $200,000 to the cost of the average home in the city between 1980 and 2006. During the same period of time, the cost of a home in Seattle went from $221,000 to $447,000…of which $200,000 was due to growth restrictions, impact fees, zoning regulations and development requirements. Ouch!

When Less is More and How to Make it Work for You

The federal Department of Housing and Urban Development (HUD) recently released new “zoning for affordability” guidelines for state and local governments throughout the nation. Every short sale investor should know and understand these recommendations, how it is likely to impact affordable housing and what it means for your investment portfolio.

Less is More

According to HUD, minimum lot size requirements used throughout the nation were originally an artifact of inexpensive land, wide open space and minimal density. In the modern economy not only is land expensive but the transportation cost, infrastructure requirements, indirect environmental and economic costs are adding up. Individuals, developers, local cities and the environment can no longer afford large lots like those used as former minimum lot requirements; official recommendations call for residential lots under 5,000 square feet (or roughly .11 of an acre) to be used for single family housing of the future.

The Trend

While the official new HUD residential lot recommendation for single family homes is 5,000 square feet or less some areas of the nation have already adopted even smaller lot ordinances. For example, Los Angeles adopted the “Small Lot Subdivision” ordinance which allows detached single family homes or townhouses to be build on units as small as 600 square feet without the typical liability and insurance costs associated with condominium projects. Seattle Washington has also passed a “Residential Small Lot” zoning district that allows single family homes to be built on lots measuring 2,500 square feet and San Antonio has followed-up with “R-3 Single Family Residential” zoning district of 3,000 square feet that do not require side-yard set-backs.

Short Sale Investors Take Note

As the trend toward affordability, reduced environmental impact and convenient commute times continues to increase short sale investors should anticipate state and local governments to adopt the HUD affordable zoning guidelines. As with all supply and demand economics, this trend is likely to result in several long term outcomes which will equate to cold-hard cash in your pocket:

1. A premium on large lots. Although affordability takes precedent, many homeowners will still desire larger lots – especially those in convenient areas of town. Single families with children, those who enjoy gardening or other outdoor interests will continue to seek out larger lots within a short commute of major amenities.

2. Potential for sub-dividing extra large existing lots. Single family residential lots well above the newly stated size may eventually be eligible for sub-dividing if they are located on the outskirts of town or other areas suitable for re-zoning.

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