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Smart Real Estate News & Commentary by Chris McLaughlin September 14, 2010

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There’s 9 recent changes in short sales that are going to cost investors a lot of money…

https://www2.gotomeeting.com/register/463692738

Here’s just a taste of what you’ll learn to overcome on Tuesday night’s webinar at 8:30 PM ET, 5:30 PM PST:

* Homeowners freaking out over deficiency judgments

* How to get out of “seasoning” jams (when the bank wants you to actually “own” the property before flipping it

* Resale restrictions in acceptance letters eating into your margins

And there’s even more!

There’s many more. Some you may not even know about. And you’ll be helpless to deal with… ….unless you discover them ahead of time…

and how to turn the table on these rules to to actually take advantage of them.

But you have to be fast. Go here for tonight’s webinar:

https://www2.gotomeeting.com/register/463692738

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Foreclosures up 16% in California

According to ForeclosureRadar, notice of default filings in California rose for the fourth-straight month in August, climbing another 16.6%.  The firm has been tracking foreclosure rates in California since March 2007, and will now offer data for Arizona, Nevada, Oregon and Washington after tracking those states for a year. Executives expect the added search capabilities to allow readers “to dynamically drill down to the state, county, city and zip code level of their choice.”  Foreclosures fell 12.2% in Arizona last month after rising 28.8% in July, but are down 20.3% from a year earlier. Banks took back more properties at auction than they resold in August in Arizona, pushing the inventory of REO homes up 4.79% from July, and 60.48% from a year ago.  In California, foreclosures are down 16.3% from a year earlier, and fewer homeowners found foreclosure relief as cancellations fell 11.2% and 15.6% more homes were lost in foreclosure sales.  The number of foreclosures in Nevada in August was 6,682, down 41.8% from the year ago and 7.5% below 7,223 in July.  In the Northwest, foreclosures in Oregon rose 10.7% in August from the month earlier and are up 12.5% from last year. Washington saw a 15.8% decline in the monthly rate  but the August level of 3,598 foreclosures is 82% higher than a year earlier.

MBA – mortgage banker profits up

Independent mortgage bankers and subsidiaries made an average profit of $917 on each loan they originated in the second quarter of 2010, up from $606 per loan in the first quarter of 2010, according to the Mortgage Bankers Association (MBA)’s 2nd Quarter 2010 Mortgage Bankers Performance Report released today.   The increase was driven by a rise in the average production volume for each firm to $196.6 million in the second quarter of 2010, compared to $157.8 million in the first quarter of 2010. As a result, production operating expenses decreased to $4,677 per loan in the second quarter of 2010, from $5,147 per loan in the first quarter of 2010.  “The significant rise in loan origination volume during the second quarter reflects the surge in first time home buyers seeking to take advantage of the tax credit before the deadline expired,” said Marina Walsh, MBA’s Associate Vice President of Industry Analysis.

“Higher production operating expenses typically are associated with purchase production compared to refinances. But in this case, fixed costs were spread out over more loans and lenders experienced higher pull-through rates. These factors help explain why operating expense dropped on a per-loan basis by $470 per loan between quarters.”  However, average profits in the second quarter of 2010 were significantly lower than the profits in the second quarter of 2009. Walsh explained, “A year before, quarterly production volume averaged $280.9 million and the refinancing share was over 60%.  The heavy volume and refinancing share helped lower per-loan operating costs to $3,414 per loan and profits soared to $1,358 per loan.”

Crying foul on Obamacare

The Senate will debate the Small Business Jobs Act, which includes a $30 billion fund to spur lending and $12 billion worth of tax breaks.  But they’ll also decide whether to repeal a law enacted as part of health care reform that will require small businesses to file millions of new tax forms — a provision sane people will know is job killing.  A small section of the massive health care law mandates that beginning in 2012, all companies will have to issue a 1099 tax form not only to contracted workers, as they must already do, but also to any individual or corporation from which they buy more than $600 in goods or services in a year.  The IRS Form 1099 is used to document income for individual workers other than wages and salaries: Freelancers get them and businesses send them out. Under the new law, the 1099 form would be used to track payments for services and tangible goods.

Also, it requires that 1099s be issued not just to individuals, but to corporations as well. The result would be millions of additional tax forms.  While major corporations have entire departments of staffers and computers to deal with tax requirements, most Main Street business owners wear the tax preparer hat themselves, or have to pay a tax preparer to do it for them.  0:00 /9:12Small business: Stop ignoring us!

“We have a Nebraska business who says it is going to cost him $23,000 a year in CPA fees just to file all this crap,” said Steve Wymer, the communications director for Sen. Mike Johanns, a Nebraska Republican who has proposed an measure to repeal the requirement entirely.  House Minority Leader John Boehner called the 1099 tax requirement “job killing” in a speech last month. “Talk about overhead.”  The U.S. Chamber of Commerce sent a letter to members of Congress on Monday with 2,434 signatures from businesses and associations calling for repeal.  The Senate is set to first take up Johanns’ measure and then move to Nelson’s version on Tuesday. It’s unlikely either will get the required 60 votes, but the issue is expected to debated and lobbied in coming days.  This may well be the tip of the iceberg as more hidden clauses leach out of the massive, largely unread bill the Democrats rammed through Congress and into the laps of Americans.

MBA – more findings

Along with the news that mortgage bankers’ profits are up, there are additional findings in the 2nd Quarter 2010 Mortgage Bankers Performance Report:

- The purchase share of total originations ($) for this sample of independent mortgage bankers and subsidiaries rose to 65% in the second quarter of 2010, compared to 56% in the first quarter of 2010 and 38% in the second quarter of 2009.

- The average pull-through (the number of closings divided by the number of loan applications) was 72% in the second quarter of 2010, compared to 68% in the first quarter of 2010. 

- The “net cost to originate” dropped to $2,611 per loan in the second quarter of 2010, from $2,945 per loan in the first quarter of 2010.  The “net cost to originate” includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.

- Total personnel expense dropped to $3,017 per loan in the second quarter of 2010, compared to $3,296 per loan in the first quarter of 2010.  In the second quarter of 2009, personnel expenses averaged $2,283 per loan.

- 85% of the firms in the study posted pre-tax net financial profits in the second quarter of 2010, compared to 75% in the first quarter of 2010 and 96% in the second quarter of 2009.

Retail sales up

The Commerce Department said today that retail sales grew for the second month in a row in August, led by back-to-school shopping and a strong showing from grocery stores and gasoline stations.  Total retail sales rose 0.4% to $363.7 billion, up from July’s 0.3% increase, and July’s increase was downwardly revised from the originally reported 0.4%.  The overall gains were limited by motor vehicle and parts sales, which declined 0.7% during the month, echoing downbeat auto sales reported two weeks ago. Last month was the worst August for industry wide auto sales in 27 years.  Stripping out the volatile auto component, however, retail sales rose 0.6% last month, much stronger than economists expected. 

The recent increase reflects rising gasoline and food prices, as well as a strong back-to-school shopping season, Paul Dales, a U.S. economist with Capital Economics said in a research note.  While the uptick is an encouraging sign that consumer spending is picking up, shoppers are still holding back because of uncertainty about the economy, he said.  “Clearly household spending is not capitulating, but it is still being hampered by high unemployment, widespread negative equity and a desire to pay down debt.”  Consumer spending accounts for two-thirds of U.S. economic activity, so retail indicators are viewed as a gauge on the health of the overall economy.

Freddie Mac – home prices will fall another 23%

In its September economic outlook, Freddie Mac says it expects 4 million new and existing home sales in the third quarter, a possible 20.7% decline from last year and 23% drop from the previous quarter.  Recent reports of plummeting home sales and near record-high delinquencies has shaken confidence in the “fragile” housing recovery. After the homebuyer tax credit expired in April, the National Association of Realtors (NAR) reported existing home sales fell 27% in July, and new home sales have fallen to the lowest point since 1963.  The news will further weigh on the market. JPMorgan Chase analysts lowered expectations of housing recovery in the next four years. Jon Daurio, chief executive at the distressed loan purchaser Kondaur Captial, warned that home prices could fall another 20% as well.  “The main issue for the housing market outlook is how much of the recent weakness in home sales can be explained by transactions that were pulled forward by the credit – that is, ‘borrowed’ from sales in future months – versus signs that a more fundamental deterioration may be underway,” according to Freddie Mac. 

Freddie has considered two scenarios for how the market will respond to the missing government stimulus.  The first is a “payback” of the “borrowed” sales over a gradual recovery. Under this scenario, home sales would drop another 10% in August from the low in July that start to climb out of the bottom. This assumes about 600,000 of the home sales were pulled forward in response to the tax credits.  The second scenario only half of these sales were pulled forward, and the rest were purchases that otherwise wouldn’t have been made without the credit. Under this scenario, sales would recovery faster, perhaps by the end of October.

Now for our real estate education section…

Monday’s Myth Buster – Renovations Don’t Always Add Up

The Myth: Flipping is Most Profitable When a Property is Market Ready

The Fact: Not only do a significant number of properties sell during the renovation stage but the time and cost savings often generate a greater ROI than a comparable “market ready” parcel.

Novice short sale investors often search for “fixer uppers” or other properties in need of maintenance and repairs; after all, it’s a great way to add value and increase the ROI or return on investment. However, don’t make the mistake of believing it is absolutely necessary – or even desirable – to spend a lot of time and money renovating or repairing every property. Instead, learn how to evaluate the best return on your time and money by understanding the facts and figures behind each transaction.

Here’s a quick tutorial on how to determine when to hold and when to sell:

1. Calculate the total time and estimated cost of all repairs with an anticipated sales schedule. Be sure to include taxes, transaction and finance fees etc…you will need this later in order to determine whether selling in “as is” condition will generate greater profits than completing the work on your own.

2. Begin working on the exterior of the property first. Not only does it provide the biggest “bang for the buck” but it attracts a lot of attention from neighbors, friends and others that may be searching for a bargain. Shrubs, paint and general repairs cost very little and can make a major impact. Put the word out that this property will be for sale “soon”.

3. Remove all trash, debris and other eye-sores both inside and outside of the home. Old appliances, ceiling fans, light fixtures and even carpeting should be removed rather than allowed to remain. It’s easier for people to envision putting their own touch into the property when it’s a clean slate. Provide an “as is” price or bonus at closing for prospective buyers to consider at this stage.

4. Continue to perform needed repairs while showing the home. Be sure to inform buyers of how much they can save by “doing it themselves”; not only can it save a lot of time, effort and headaches for the investor but buyers often prefer to select the color and style of carpeting/flooring, window blinds, appliances and other items.

5. Don’t forget to add the time/value of money and opportunity cost. Like the old adage “a bird in hand is worth two”…a qualified buyer is worth two prospective buyers any day. If you have a “live wire” then it’s often worth it to make a little less than originally anticipated but move on to bigger and better things. Time is money and investing in short sales is often a numbers game. Rather than trying to gain bragging rights to the “most” profit, lock in real gains by selling fast and moving on to the next deal. Contrary to popular opinion, properties are not always easier to flip when they are market ready…people like to feel like they are getting a deal. Make it your priority to give them one. Perform just enough repairs to allow people to see the potential in the property then lock in the return.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
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http://www.reomillionaireclub.com
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http://www.smartrealestatenews.com (subscribe to this newsletter)

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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     400 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
–

• Mid-Day Market News & Commentary by Chris McLaughlin, December 8, 2008
  http://www.shortsalesriches.com/welcome.html

  ——
  What if there was someone who would lend you money for 24 hours, regardless of your credit, your income, and whether you just filed bankruptcy?   What if you could then re-sell a property in that time and make a fortune?  Join us for our amazing webinar tomorrow!  We’re holding this again because of the tremendous demand that jammed up our servers last week … Right now there are only 17 spots left:

  Recession Proof Investing Webinar (Tuesday, 9 PM EST, 6  PM PST):

  https://www2.gotomeeting.com/register/848641949

  —–

  The financial markets were in better shape this morning as investors were optimistic that the enormous infrastructure spending plan proposed by President Elect Barack Obama over the weekend will help the economy.  The investment is the largest since the 1950s, when the interstate highway system was built.   And investors appeared to be pleased with a possible $15 billion bailout for the Big 3 automakers.

  At 11:20 AM, the Dow Jones Industrial Average was up 303.22 to 8,939.03 and the Nasdaq was up 49.57 to 1,558.

  Today’s Commentary: Depression, Deflation & Short Sales

  The media is beginning to compare the current economic downturn with the Great Depression; whether or not you believe the comparison is warranted or not any prudent short sale investor would be wise to evaluate the wisdom of buying real estate in a deflationary economic situation. After all, if history repeats itself we may see housing starts drop by up to 80 percent as they did during the Great Depression.

  Today, we will take a few minutes to examine both the similarities and outcome of real estate during and after the Great Depression…then make up your mind whether or not Short Sale investments make sense. The first thing to remember is that the Great Depression actually took place over several years; the stock market hit its peak in 1929 then continued to drop until 1932…a total of three years. During that three year period of time, housing starts dropped by 80 percent. Likewise, housing starts hit their recent peak in 2006 and have dropped by nearly 70 percent as of this writing at the end of 2008. Notice, during the Great Depression actual sales prices of homes continued to rise even as housing starts declined; likewise, the same pattern is demonstrated in recent trends as housing prices reached their peak between 2006-2007…nearly a year after housing starts began to decline.

  The next similarity concerns speculation; immediately preceding and during the 20’s massive speculation took place in the real estate market especially in areas such as Florida which resulted in the skewing of data for other parts of the nation. Today a similar pattern can be discerned as speculation in California, Florida, Nevada and Arizona lead the way in both price appreciation and more recently; foreclosure filings. In fact, these four states alone represent over 50 percent of all foreclosure filings nationwide.

  Despite the financial pain resulting from price declines and plummeting housing starts, savvy short sale investors would do well to notice that during this same period of time, the wealthiest 1 percent continued to purchase land, farms, homes and other assets so that by the end of the Great Depression they owned a full 40 percent of the nation’s wealth. Many of the same states impacted the most by falling prices and speculation became the new growth areas during the decades after the Great Depression; California and Florida experienced immense population explosions which made many wealthy.

  Finally, it should be noted that those who invested in stocks during the same period of time had to wait until 1954 before the stock market reached its former high (not adjusted for inflation!) whereas farming, natural resources and real estate recovered long before that period. Bank loans all but evaporated creating a situation where real estate was only available for purchase by those who could pay cash or other high net worth individuals able to obtain loans in a restrictive market. Meanwhile, the average citizen attempting to work for a living found high rates of unemployment (by some estimates 20 percent or greater), an actual decline in wages and increased productivity quota of over 40 percent.

  In a nutshell…

  1.     Those that depended solely upon a job for their income faced falling wages, high unemployment and back-breaking production quotas.

  2.     High net worth and/or wealthy individuals that purchased stocks had to wait nearly 25 years for their investments to reach former highs.

  3.     Those able and willing to purchase real estate lead the recovery with renewed wealth.

  Your Personal Plan of Action

  1.     Take the Big Picture Approach. More than one investor has been led astray by taking a narrow perspective that blinds them to the full possibility and potential of real estate.

  2.     Don’t Ignore your Instincts. It takes courage to act when others are fearful but that is exactly what creates opportunities. Whether you believe the market is rational or motivated by fear and greed the basics of supply and demand hold true. Those who own what others want and need will benefit; during tough economic times, everyone goes back to the basics. Sales of big LCD TV’s or the latest iPhone might suffer but food, safety and shelter never go out of style.

   

  More on Tuesday!

   

  See you at the top!

  Chris McLaughlin
  http://www.shortsalesriches.com/blog

  P.S.:   Investors who truly leverage the power of Internet and “Web 2.O” strategies BEFORE everyone else jumps on the bandwagon will have an opportunity to set themselves up for a lifetime.  I’m not talking about you being able to do a few more deals this year… I’m talking about a complete lifestyle change.  We promise to blow your mind!  This Thursday at 9 PM! 
  Implement “Web 2.0″ strategies in a way that will have a profound impact on your business.  Just register here today:

  https://www1.gotomeeting.com/register/264492432

Mid-Day Market News & Commentary by Chris McLaughlin, November 6, 2008
http://www.shortsalesriches.com/welcome.html

We knew it was coming, but the negative news from retailers today weighed on the markets, sending stocks tumbling for the second day, with the Dow Jones Industrial Average dropping 443.48 to 8,695.79.  Department stores like Penney reported a 13% drop in same store sales, Macy’s dropped 6.3%, and Target Corp. slid 4.8%.  But the luxury stores were hit the most, with Saks Inc. declining 16.6% and Nordstrom slipping 15.7%.

There was one bright spot for most US consumers, especially Realtors who drive clients around: crude oil plunged 7% amid concern of a global economic slowdown.   U.S. crude prices dropped $4.53 to $60.77 a barrel, well below the high of $147 a barrel reached in July.  The decline, while bad news for oil companies, will mean further relief at the pump for many Americans and a possible uptick in sales for large SUVs.

Now, on to our real estate investor section…

Top 5 Growth Markets for Short Sale Investors

Ever wonder where people are moving? According to recent data published by the US Census, the top projected growth markets for the nation between now and 2030 are as follows:

1.     Arizona

2.     California

3.     Florida

4.     Nevada

5.     Texas

The first thing any short sale investor should notice is that “Growth” is ranked – not total population. Growth represents the percentage of population increase rather than existing population. This is an important concept when it comes to the purchase of any real estate investment because growth is equal to demand. The greater the demand the greater future appreciation and future value of the land and property. When deciding where to buy your next short sale investment property select a combination of affordability and growth potential for a win-win combination.

If growth markets are where the future values lies then it should come as no surprise that dying markets should be avoided at all cost. According to the same data, there are three areas actually losing people even while the rest of the nation shows an increase in population due to birth rates, longer life-span and immigration.

Think twice before investing in real estate in these states; you need to be cautious as there are more people leaving the area than coming in. Less people means less demand and less demand will eventually lead to lower prices and little to no future appreciation. To add insult to injury, property taxes are likely to increase on those remaining property owners in an attempt to provide basic services with declining revenue base. Dying markets include:

1.     Washington DC  (although this could be reversed with a new Administration coming to DC)

2.     North Dakota

3.     West Virginia

While selecting a growing or contracting market is one piece of the puzzle when it comes to making an informed real estate investment decision, it’s not the only one. Price, location, return and more are each important aspects to consider before purchasing any short sale property.

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

P.S.:  Want to learn how a 27 year old kid makes six figures a month flipping short sales?  Join us TONIGHT, Thursday, at 9 PM EDT and 6 PM PST by registering for our fr’ee webinar:

https://www2.gotomeeting.com/register/387995435

 

Mid-Day Market News & Commentary by Chris McLaughlin, October 31, 2008
http://www.shortsalesriches.com/welcome.html

—

Get your own personal short sale coach!

 

If you already have the system, are you ready to really take it to the next level?  Go to http://www.shortsalescoach.com to learn how.  For just $7 a day you can begin implementing an amazing system!  And that $7 just got even cheaper … be one of the first 8 clients to use coupon code “SILVER50” to take $50 off the Silver Level Membership up until 2 PM EDT today (Friday)!  Click on http://www.shortsalescoach.com quickly!

—-

 

The Wall Street Journal reported today that the state of Nevada led the country in having the most homes under water—the circumstance when the debt on the property exceeds its current value.  First American CoreLogic, a real estate data company, estimated that a whopping 48% of all homeowners who own single family residences in Nevada are under water.  This compares with an estimate of 18% nationwide.  Home prices in Nevada have fallen approximately 36% since 2006. 

 

Stocks were headed slightly lower this morning after the Reuters/University of Michigan Survey of Consumers showed that consumer confidence had its largest drop ever in October.  The index dropped to 57.6 in October from 70.3 in September.  The report noted that “consumers reported the most dismal assessments of their current financial situation ever recorded.” 

 

Yeah, we know it is tough out there … but we’re reminded of the good news, and that’s that short term interest rates are now way down, with prime now at 4%.  We’re reminded that mortgage applications also jumped this week.  And we’re reminded that regardless of who wins the Presidential election next week, the honeymoon period that typically greets any new President will likely boost consumer confidence heading into 2009.

 

Now on to our real estate investor section…

Numbers to Know: Net Worth

Whether you are applying for loans or simply keeping track of where your time and energy are going, one number every short seller needs to know is net worth. It’s a great tool for personal use but also an effective method of showing sellers why a short sale is a good idea.

Personal Use

Net worth is easy to calculate and makes a great way to track progress and productivity each year; best of all, high net worth individuals are eligible for plenty of additional perks ranging from “qualified” investment opportunities to premium banking services. Unlike other measures of wealth, net work doesn’t penalize against those who prudently use leverage or debt to increase profits – making it the perfect measure for short sale investors to keep track of their growing empire.

Short Sale Use

Sometimes people need a reality check to realize exactly how serious their situation is and how long it could take to reverse it. It’s easy to include a net worth calculator on a mail-out or use during the negotiation stage for a little extra motivation. It’s simple but effective – give it a try!

How to Calculate

1.     Tally Assets. Make a list of all assets and put a current value next to each. Examples include homes, cars, cash, bonds, stocks, real estate, art, antiques, jewels or any other item of value.

2.     Tally Obligations. Make a list of all short and long term debts, loans and other obligations. Use the total balanced outstanding not the monthly charge. Common examples include car loans, student loans, mortgages, credit card balances, taxes, liens or other debt obligations.

3.     Subtract the total amount of obligations from the total amount of assets. If the number is negative then you have a negative net worth – not good at all! Unfortunately, nearly 10 percent of Americans have a negative net worth. This means they could sell every belonging they owned and still be in debt…not even counting the cost of late fees, judgments and commissions owed. If the number is positive then congratulations – that is the level of your current wealth.

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

P.S.: 

Want to hear from a Realtor who made $30k last month helping investors sell short sales, but who never spoke to a bank and didn’t spend 45 minutes on hold?  Check out this YouTube video to learn about Jason Turk, Realtor from Tampa, FL:

http://www.youtube.com/watch?v=HuXicBom45o

 

P.P.S.:

And if you want a huge laugh, and can’t wait to “flip” over how to flip short sales, be sure to check this new video out, too:

http://www.youtube.com/watch?v=fqV4CpBhKTs&NR=1