Rent Prices are on the Rise – Should You Rent or Should You Own?

Reis Apartment Vacancy Rate

This great graph comes from Calculated Risk.  It is yet another confirmation that rental vacancy rates are plummeting so we can expect rental prices to be on the rise.

In Good Stuff I learned this Week, I wrote that roughly 10 million more individuals will be renting in the next 5 years as more people lose their homes and become renters.

So what does all this mean to you? As a landlord, your monthly rental amounts will increase; as a seller it will be more difficult to find a buyer as many people now have a fear of homeownership; as a buyer you should continue to find discounted prices because there are fewer of you out there; as a tenant well, sorry, but rents are going up.

So, should you buy or should you rent? 

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The Cost of 100% Financing

congress

Tuesday was a good day for the business. We had two closings on properties we sold.

Here was the interesting thing about one of them. The buyers came to closing with USDA financing. Are you familiar? Under the terms of the program, an individual or family may borrow up to 100% of the appraised value of the home, which eliminates the need for a down payment.

And this family did.  They received 100% financing.  We’ve sold a number of properties this way.  What was unusual in this case was that the seller had to bring $12,112.40 to close on a $143,000 purchase.  That’s almost 10% and most of it was for fees!  Times have changed and borrowing is not only more difficult but far more expensive!

Here’s a sample of what the buyer had to bring to close on this property with free financing:

$1982 origination charges

$ 400 appraisal fee

$  48 credit report

$5187 mortgage insurance

$1077 lenders title insurance

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3 Things to look for When making an Offer

Offer

As an investor, how do you make your offers? There are so many deals out there today but, are they really deals? If so, why hasn’t someone else snatched them up?

Here are some beginning pieces to consider when you’re ready to buy:

1 – Equity:  Will it have any? Most homes today are selling at 10% or more below market value. Personally, that tells me that market value is actually 10% less than we’re saying it is… If I can buy a retail house at 90% of market value, that is not enough of a deal for me to consider it a good one. My suggestion is that you expect to get at least 20% off what is considered market value to know that you have equity. In fact, that works here in North Carolina where our values haven’t dropped much, but may not be enough of a cushion yet in places like Arizona or Nevada.

At any rate, you don’t want to pay more than 80% of what the home will be worth after you’ve repaired it. For example,

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Closing Costs – How Expensive are They?

Calculator

It depends upon where you live, of course.

Bankrate did a survey in 2009 and 2010 of 49 states, 2 areas in California and the District of Columbia.

The 5 most expensive states for closing costs are:

  1. New York – origination fees, title and closing costs = $5623
  2. Texas – origination fees, title and closing costs = $4708
  3. Utah – origination fees, title and closing costs = $4605
  4. California – origination fees, title and closing costs = $4566
  5. Alaska – origination fees, title and closing costs = $4327

North Carolina ranked 51 out of the 52 areas surveyed with total closing costs averaging $3255.  Hooray North Carolina!  Everyone should live here!

Arkansas was the least expensive coming in number 53 with costs averaging only $3007.

These numbers were based on a $200,000 purchase with 20% down.

For a breakdown of costs in your state, check out Bankrate.com.

Why is it important that you understand your closing costs?

Find a Home on Google Maps!

Do you know how to find a home using a Google Maps? You can even see the neighborhood!

How Much can You make When You Buy a Property?

Dollar Dice

Do you know how to buy? Do you know how much you should pay for a property?

We use a formula called our “cost to sell” guidelines. Filled out, this chart tells us exactly what our costs to buy will be and what we can offer in order to be able to later make a profit.

We begin with our comps to determine the market value of the property. We then subtract from that number the seller discount because most offers come in 3%-5% below asking price. Next, we subtract out our other costs: realtor commission, closing costs, holding costs, repairs, insurance, loan payoff, etc. We go over these numbers with the seller so they can understand the costs they will incur to sell their property and that these will be our costs, as well.

Most people don’t realize when they list their properties that it will cost them about 20% to sell because of all the associated fees. So, if you list a home for $100,000 you will actually realize about $80,000 at your closing.

I want to share with you the importance of following the “cost to sell” guidelines when making offers.

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Is it Better to Buy or to Rent?

Calculator

The New York Times Business Day put out a great calculator that I hope they never take down!

It shows costs accumulated for 6 years for both buying a home and renting a property.

What they determined (and I will argue with some of their conclusions in a minute) is that it is better to rent if you’re staying less than 6 years but better financially to buy if you plan to stay in the home longer than 6 years.

I do agree with their original premise that whether renting is better than buying depends upon many factors including how fast prices and rents rise and how long you stay in your home.

This is a very detailed calculator and I love it. A word of caution when you check it out because, as it’s set up, the default that you first see leaves out a few points I consider very important:

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How to sell your home.. Discount!

for Sale

The economy is down and the market is flooded with properties, both retail and Bank owned.  This is not a good time to list a property unless you can sell at a discount.

I’ve been reading lots of news articles lately all encouraging low pricing to get your property sold. Trulia, PMI, Moodys, the Wall Street Journal, even the National Association of Realtors all say that retail pricing will not get your property looked at in this market.

This morning on Facebook, a Realtor posted that only 25% of the listed properties will actually sell! That stat is end of 2nd Quarter 2010 based on GRRA- Greensboro area of Guilford County – Realtor Association.  Yikes!

Trulia announced that 24 percent of listings currently on the market as of July 1, 2010 experienced at least one price reduction, up 9 percent from the previous month.  They go onto say that 22 of the top 50 cities across the U.S. experienced price reduction levels at 30 percent or more compared to just 10 cities the previous month.

It appears that the expiration of the tax credit has hit the market hard and there are far fewer “left over” buyers now that the credit is gone than expected. Some are predicting that, due to the slow summer sales, we will experience a double dip in the housing crises during the second half of 2010.

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Foreclosures are Hard to Buy

Cash

But how do we notify the banks?

I read an article where a realtor worked to find out about a boarded up house in a very nice neighborhood. It had been neglected for months and many people were “interested” in purchasing.

What she found out in her investigation was alarming; the husband/wife realty team who had been given this REO months earlier had a total of 500 REO’s to handle and couldn’t handle the volume!

My question is, do banks check or follow through with any of this? Do they have a department of “foreclosure follow-up”? I doubt it.

What a shame. I’m also constantly amazed by some of the realtors who get REO’s. We have tried working with many who have made the process from our end, cash buyers, a nightmare.

What I know for sure is this;

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How to Make an Offer to a Seller

Invest

By now, I’m sure you know that I invest in real estate. And that I recommend it to everyone. And that I think this is a fabulous time to be buying.

Last night, at our Mastermind meeting, the main topic was how to present your offer to the seller.   This is the most important part of the entire buying process and, done right, it takes time. Don’t just hit someone over the head with your offer, take time to sit and talk with them, in depth, about how you came up with your offer.

Before you meet with the seller you’ve already done your homework and determined that you want the property, the market value and what you can pay for it. You’ve determined that you can resell for a profit if you plan to resell, or cash flow it every month if you plan to hold it and rent it out.

So you go to the seller armed with your research.  There are a number of things you need to take with you.

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