Is pricing a home low, in hopes for a bidding war, a good idea?

When purposely pricing a home below the market value in hopes to attract multiple offers, then you agree to play the bidding war game. In a multiple offer situation, it can good for the seller, because people do tend to let emotions fly when they make a higher offer. And this leads to more money for the seller. However, with heightened emotions, there is also pain and then mistrust. Every buyer wants the house, and they are going to be mad when you have to tell them, I'm sorry your offer was beautiful and perfect, but not good enough and therefore REJECTED!

Let's say you have 6 buyers with offers... That's 5 that now are angry at someone. When the onion is peeled back, some will scrutinize if you used good faith in consideration with their offer. If the agent presented it in a timely manner. Did you pass any confidential information to other parties milking higher offers. Did you discriminate against a particular buyer. Even if none of this is true, the accusation itself, if pushed into a legal arena, is simply not worth the inconvenience. I have been around the block enough to see it get ugly too many times.

Let's look at it from another angle. Let's say you get your first offer. It's good. But another offer is on the way. Its better. You wait. The first buyer gets angry. "Why hasn't my offer been accepted?" The second buyer never produces, and the first buyer withdraws. While you waited, the first buyer kept looking. They know you didn't respect their offer, and just found it easier to work with another seller. The cliche is similar to dating. "There are plenty of other fish in the sea!" Thus is true with the 2008-2009 real estate market. You now have a house without an offer at all. A low priced home and no bidding war. Other buyers are looking at it and saying, what is wrong with that house? You can't raise the price now, the market expects if you don't sell that you will lower your price.

On many occasions, you will end up with exactly what you asked for. More offers, and you pick the best one. You have to price it perfect, and know how to pull offers from buyers. You have to know what to say, without saying too much. You have to earn their trust, and being willing to break it. And if you are a Realtor, and you want to be successful, you can't let others know your intentions. Buyers and other Realtors that end up with the short end of the stick, remember who put them there.

If you want to price it low for the intent to score a higher value, you have to be willing to take the risks.

Model Home Lease Back and Cash Flow

What if you could invest in Residential Real Estate, but treat it like a commercial investment?

The Model Home Lease Back.

The builder will keep your home looking like the Flagship of the neighborhood. People will walk through daily, but the systems and appliances are going to be hardly used. It's like buying a brand new car and keeping it in the garage.

It's similar to commercial investments: because the tenant is a company, rather than a family. They pay rent plus utilities and taxes, unlike residential. They are a built in tenant, and handle their own maintenance, no need for property management.

Why would the builder sell the model? A builder needs to raise capital in today's market due to tight credit limits. Building a spec home takes time and money. But a model is standing inventory that also needs to be sold at some point. This makes the most financial sense. They raise money, continue building, and rent back until they are finished with the development.

In the meantime you receive huge positive cash flow, on the nicest house in the neighborhood. No concern of vacancies or pets, and earn about 12% return on your downpayment and costs.

See below for our latest opportunities located in the city that has the largest job growth in the nation... Dallas-Fort Worth. Would you believe that this area also has one of the highest population growth rankings in US as well?

Jobs = People

Top 10 Population Metros

Nielsen Study Finds Atlanta, Dallas and Phoenix Are Top Markets by Recent Population Growth
November 3, 2008
From MarketWatch, submitted by David Boehmig, President/Founder

Analysis Also Identifies Seven Population Growth Indicators That Strongly Correlate to Fast-Growing Markets, Providing Expansion Opportunities for Retail Industry

NEW YORK, NY, Nov 03, 2008 (MARKET WIRE via COMTEX) — A new Nielsen Company analysis aimed at uncovering expansion opportunities for the retail industry in a down economy has found that sustained growth is occurring in large metros such as Atlanta, GA; Dallas, TX; and Phoenix, AZ, which ranked as the top three fastest growing markets over the last eight years.

The study, which was conducted by Nielsen Claritas, Nielsen’s leading marketing information source, and based on data compiled as of early 2008, showed that Atlanta and Dallas CBSAs (Core Based Statistical Areas) added more than one million in population since 2000, while the Phoenix CBSA was close at 971,849.

            America's Top 10 Markets by Volume Growth: 2000-2008

                                        Population  2000-2008    2000-2008
1       Atlanta-Sandy Springs, GA        5,357,017      26.1%    1,109,036
2       Dallas-Fort Worth-Arlington, TX  6,164,066      19.4%    1,002,522
3       Phoenix-Mesa-Scottsdale, AZ      4,223,725      29.9%      971,849
4       Houston-Sugar Land-Baytown, TX   5,665,312      20.1%      949,905
5       Los Angeles-Long Beach, CA      13,304,944       7.6%      939,317
6       Riverside, CA                    4,170,780      28.1%      915,959
7       Washington, DC-VA-MD-WV          5,384,723      12.3%      588,540
8       New York, NY-NJ-PA              18,871,770       3.0%      548,768
9       Miami-Fort Lauderdale, FL        5,526,947      10.4%      519,383
10      Las Vegas-Paradise, NV           1,875,245      36.3%      499,480


Nielsen Claritas Pop-Facts(R) 

Rounding out the top five were the Houston and the Los Angeles CBSAs, which also grew by nearly a million people at 949,905 and 939,317, respectively. A CBSA includes both metropolitan areas of at least 50,000 population and micropolitan areas with a population between 10,000-49,999.

“And while some of these markets like Phoenix and Los Angeles have been hard hit by the recent wave of foreclosures, there has been no mass exodus from these markets or anywhere else. People who have foreclosed most likely have not left the market but rather have just become renters. Faltering markets, such as these, will likely rebound and continue to grow — and their underlying demographics are solid,” said Mike Mancini, Nielsen Claritas Vice President of Data Product Management and co-author of a whitepaper that documented the study’s findings, titled:

“Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth.”

These Population Growth Indicators, which strongly correlate to fast-growing markets, are:

1. large land areas,
2. booming suburban rings,
3. widespread affluence,
4. an increasing Hispanic population,
5. diversified employment,
6. long commutes, and
7. the presence of lifestyle shopping centers.

“The indicators give retailers a robust tool to identify locations with significant potential for market expansion — markets that may even lead the way in an economic recovery in the coming years,” said Terry Munoz, Vice President of the Nielsen Claritas Retail, Restaurant and Real Estate Group and the other co-author of the whitepaper.

In looking at each indicator, the study further classified CBSAs into three primary groups: Metro Cities, with populations over 200,000; Metro Towns, with populations between 50,000 and 200,000; and Micro Towns whose populations are under 50,000.

For example, a ranking of the markets with populations under 100,000 people revealed that the top three — Palm Coast, FL, Fernley, NV, and St. George, UT — all grew by more than 50 percent since 2000.

Located beyond congested metros, these markets have attracted jobs, retailers and residents thanks to low crime rates and fewer traffic jams. Some of the smaller markets, like St. George, are close to national parks and wilderness areas that appeal to young families and retirees, according to the whitepaper.

“With this analysis, retailers can quickly assess a market’s potential and determine where it fits into an overall growth strategy,” Munoz said. “Even in a down economy with slow population growth, this innovative modeling approach can suggest expansion opportunities in overlooked markets.”

For more information on how to obtain a copy of the whitepaper please visit www.claritas.com.

About The Nielsen Company

The Nielsen Company is a global information and media company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and business publications (Billboard, The Hollywood Reporter, Adweek). The privately held company is active in more than 100 countries, with headquarters in New York, USA. For more information, please visit, www.nielsen.com.

You had me at ZERO

Recently I was talking with a very good client of mine about a purchase, and I was reminded of one cardinal rule.

Keep it simple.

I was talking to him about a property that could be bought for ZERO down, rented, had positive cash flow, and was in a nice location of a popular city in the US.

His reaction was, "This sounds too good to be true, does it work?"

I was so excited that a buyer wanted to talk to me about investing in real estate, rather than punching me in the face or throwing their soda at me, (both have never happened to me, by the way) that I simply reacted without thinking.

My response:

It does work. These are real fannie mae approved loans. They use the equity as the down payment. It only works when 1.) a seller that owns the property 100% free and clear, and is willing to sell and get paid off later. 2.) local bank willing to finance under these terms. None of the big banks will do it. They only see investing in black or white today. But a local bank knows and understands its market better and as long as they have a Fannie Mae stamp, they know it's easier to sell on Wall Street.

The buyer essentially takes the 100% price, uses 25% of the equity as his down (zero cash) and borrows 75% at 6.125% 30 year fix interest rate. Terms that cash flow all the time. The cash required is usually just closing costs. Anywhere from $2000 to $7000 depending on the property.

Everyone says its too good to be true. So, what is the catch?

The catch is… you could have paid cash for the house and got it cheaper 3 weeks earlier, if you were willing to spend ALL cash, buy it from the bank, make your own repairs, settle all outstanding liens (whatever were discovered) and then find a renter. Essentially, the catch is, yes there is a better deal if you are willing to take all of those risks.

This is a way, to still get a great deal, and hardly put any cash out of pocket, and having most of those risks being taken by the wholesaler REO company.

My company makes its money by being the lender, and a commission as the broker.

He said, "Stop, you had me at Zero"

Property Performance with zero down payment option

Purchase Price $138,000

Owner Finance Opportunity:
10% down or $13,800
6.5% interest only, 3 years fixed

Prime +1 year 4 and 5.
60 month balloon. Refinance or Sell.
$16,000 rebate after closing

Bring your own lender:
Reduce 10% off the sales price.

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Owner financed zero down option payment = $672/mo + (no mortgage insurance MI) + insurance + tax = $849/mo

Owner Occupant Payment Analysis = $899/mo with $4,350 down, FHA with MI, Outside Lender ------>

Investor Cash Flow Analysis on Pre-rented Property with Zero Down (owner financed) ↓

Click Images for Larger View

All figures are estimates. Rates are subject to daily market changes. Qualifications vary from lender to lender, owner financing qualifications are different from conventional lenders as well.

Fannie Mae has good news for investors

As of March 1, 2009, Fannie Mae increases its loan limits from 4 mortgages to 10.

Finally, investors are not snubbed, but being allowed to help in the housing recovery.

In the last 12 months Fannie Mae pulled its stamp of approval of investors with more than 4 mortgages for fear they were risky and toxic. True, some were. Many speculators did get in over their head and create some damage to the housing industry. Many of them used the subprime product, though.

But realistically, the investor with more than 4 mortgages, may have been the professional, savvy, and experienced investor that our economy needs. And we need them active, not with one hand tied behind their back. This is the period where foreclosures are rampant. Some cities are 1 in 34 homes are foreclosures. And some neighborhoods are 1 in 10. These are conditions that investors, people with money, willing to take chances, thrive in.

And when the housing market desperately needs risk taking buyers, these buyers were limited to 4 mortgages. Most of them using one for their Primary.

Not any more. These investors can jump in at auctions, use their capital, and refinance down the road if need be. They can refinance their current properties, that may have adjusted and been quite painful on their monthly budget.Making this change will allow more credit to flow, and release some toxic assets that banks need to get off their books.

OR SO WE HOPE!!! It's all up to the investors.

In short, here are the new guidelines:

720 credit score
25% downpayment for a 1-unit (30% for a 2-4 unit)
No mortgage delinquencies in the last 12 months
6 months of reserves for each investment property.

Fannie Mae Disclosure

Are you glad you escaped the housing bubble?

Kudos to you, if you missed the last housing boom, because you missed the big BUST too.

Investors and homeowners alike, that sat on the sidelines during the last real estate boom, are NOT kicking themselves today.

They may have watched home prices in many markets around the country go up 10% - 20% in one year, and thought...

"Boy, this market is really heated, I'm staying out of it" or "I wish I got in earlier, these prices today are ridiculous"

But, they did not buy earlier, and they did not buy when the market was heated, and they certainly did not buy during the free-falling bust.

What a sigh of relief. No Loss... but, No Gain.

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Historically, real estate has gone up approximately 4% per year since 1910, almost 100 years. [reference Robert Shiller of Case Shiller from Irrational Exuberance.] Consider inflation, and that hardly seems like a good investment. Consider, leverage by financing real estate, and positive cash flow by income received, and now it looks like a phoenomenal investment.
It can look like a bad investment when you pay all cash, speculate on the appreciation, or have a large negative cash flow. Avoid those things and buy for the long term, and it is a great return.

Let's assume the most recent bust, has erased the gains of the boom. 08 erased 07. 09 erases 06. In some markets 08 may have erased 05 too. BUT, never the less, investors that bought in 2000 still have a 20%-24% gain on average. The same would also be true for some that bought in 06, may have to wait for 2016, but could receive 20%-24% gain as well.

How many times has real estate posted similar losses? The last similar drop was 2 generations ago. It is safe to say, it may not happen again in our lifetime. But if it does, it seems to wipe away recent gains, not total gains. Many buyers that are taking advantage of prices today, are saying, "We are happy to afford today's values, as we were priced out of the market a couple years ago." (not priced out a decade or more ago)

Comparatively, if you invested in the following companies for a decade, do you think you would have similar gains, let alone any of your investment back?

Motorola, Sears, Ford, Citigroup, Fannie Mae, Yahoo, Qwest, Firestone, American Motors, Texaco, Pan Am, Worldcom, Enron, Lehman Brothers, Circuit City.

Energy, Telecom, Finance and Retail Giants... no investment is 100% safe, including real estate. But many of the above companies no longer have any value left, or are facing that fate. Even, I am guilty of owning several on that list, based on raving reviews or a sparkling prospectus. No one could predict their destiny any more than the recent boom/bust mortgage crisis. Whenever something is too good, it usually isn't good forever.

This is not an argument of stock vs. real estate. Rather, I am saying, Real Estate can be viewed as a safer investment, without surrendering your entire investment to a entity that declares itself bankrupt, or corrupt CEO running the company into nothing. There is still something of value with real estate, even in the down turn. Either a roof over your head, or renting the roof over someone else's head.

If the worst is behind us, it could be another 60 years before you have to worry about losing your initial investment in Real Estate. And if you truly owned and financed said property during that period, you would own it free in clear long before that time came!

But if you want to buy or invest, you have to jump in sometime. But when?

The safest time to jump in will be after the bust. No one can predict the perfect time, but watch and see who is buying today, and don't just be the watcher.