Election Means Housing Recovery

Mid-Day Market News & Commentary by Chris McLaughlin, November 5, 2008
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I know, I know … you’re a Republican and you just saw the headline “Election Means Housing Recovery” and you want to delete this e-mail, right?   Guess what?  I’m a Republican… but whoever won last night the headline would have been the same. Why?  We’ve finally taken uncertainty out of the equation.  People know who is President for the next four years. 

Everyone understands that the Democratic Party is now in charge.  There will be accountability – the blame game is basically over for the next two years: the Democrats must deliver or there will be lots of angry folks 2 years from now during the mid-year elections. 

And guess what?  The only way they can improve this economy is by improving housing demand and stabilizing prices.  That means that coming up with more incentives for homebuyers is the key: you can’t just focus on the supply side of the equation, if there aren’t adequate incentives such as significant tax credits and low interest rates, buyers won’t come out as strongly.

So assuming that all the lobbyists hired by builders and Realtors have working the halls in Congress, what is most likely to get done? 

First, huge tax incentives must be given to buyers without strings attached.  Right now they offer $7,500 for first time home buyers, but then they require the homeowner to reimburse the government $500 over the next 15 years.  Look for the strings to be eliminated, the tax credit to be a true nonrefundable tax credit, and I wouldn’t be surprised if it didn’t increase to $10,000 or more.

Second, interest rates must be lower.  Sure they are great at 6.5% historically, but we’re talking about stimulating demand—and to do so, buyers need something that gets them off the fence.  Look for the government to either buy down the rate or provide a guarantee whereby the lender, or Fannie/Freddie, is able to provide even lower interest payments. 

Third, incentives must be given to investors, not just homeowners.  There are plenty of short sales and REO properties out there … we need to turn these into rentals owned by investors quickly, as the less supply we have on the market the better for price stabilization.  So if Congress does provide a low interest rate environment, it needs to extend that not to just first time homebuyers but to the investor community as well.

Do I think all this will happen?  Probably not.  But something will happen, and that’s great news for investors and Realtors! 

Now on to our investor education section …

Low Cost Asset Protection: Umbrella Insurance

One of the least expensive and most versatile forms of insurance every short sale investor should be aware of is the humble and often overlooked umbrella policy. For many real estate investors, tax advantages are one of the main reasons they decided to begin purchasing real estate. Unfortunately, for those investors with significant personal or professional assets the decision to hold real estate in their personal name can create excess liability and risk which reduces the overall benefits derived from buying and selling short sales.

In order to reduce personal liability and exposure, many short sale real estate investors opt for LLC’s or other forms of ownership; however, the cost and complexity often discourages beginning short sale investors from taking proper steps to protect their interests. One easy method for those new to short sales is simply to purchase an inexpensive umbrella insurance policy.

Typically, an umbrella policy picks up where your personal liability insurance (homeowners, car or other) leaves off. A $1-million dollar policy usually costs less than $300 annually and is available through most insurance agents.

The added benefit of using an umbrella policy not only reduces the overall risk of losing your personal home and assets in the event of an accident or injury on the property itself, but it also protects the property and other short sales investments from other claims arising from auto accidents or other sources of potential liability including teens or other young adults still living at home (remember, parents are legally responsible for teenagers including auto accidents or other situations that can place all of your hard-earned assets at risk in the event of a claim above and beyond your insurance coverage).

To determine the amount of liability you need simply add up your net worth and compare to your current liability coverage for auto, homeowners, professional and other policies. Purchase an umbrella policy in an amount at least as high as the excess asset amount.

Don’t let fear of lawsuits or personal liability exposure limit your decision to invest in short sale property; it’s inexpensive and easy to get started without exposing your other assets to increased risk simply by purchasing an umbrella policy.

More tomorrow…

See you at the top!
Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
e-mail: info@shortsalesriches.com
Phone: (800) 452-7627

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