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THE BUZZ
In keeping with this month of thanksgiving, I´m glad to be able to share some good news with you. The U.S. economy grew 3.5% in the third quarter, the best showing in two years. Consumer spending on big-ticket goods soared at an annualized rate of 22.3% in the same quarter. Spending on housing developments jumped at an annualized pace of 23.4% nationwide - the largest jump since 1986.
Real estate is looking positive:
- Sales activity is at the highest level in over two years, according to the National Association of Realtors (NAR).
- Existing home sales jumped 9.4 % by October.
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Housing supply is the lowest it's been in two and a half years, according to Lawrence Yun, Chief Economist, NAR.
On a local level, I´m seeing some multiple offers for properties that are well-priced. Inventory is low and buyers are active. As buyers absorb the inventory, home prices are predicted to rise in the first and second quarters of 2010. Now is the time to act. Give me a call with any questions.
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Featured Listings: |
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 PENDING 9053 Rawhide Dr, Sacramento, CA 95826 - $175,000
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 PENDING 7615 Peoke Way, Sacramento, CA - $134,900
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 3351 Virgo St, Sacramento, CA - $104,900
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 COMING SOON - 2820 29th St, Sacramento, CA 95820
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INVESTORS CORNER
THE ART OF "FLIPPING HOUSES"
What better way can a common man build his millions? Well, not many. It really can be a quick way to create wealth as long as the flipper doesn't let the flippee house take over his life and bank account.
The number one equation to take into account on this project is the margin. What is your cost to get into the house and the average sales price of a house in the selected neighborhood on a remodeled home? Obviously, you want this margin to be as high as possible. The challenge in today's market, when looking at it nationally, is that many of the diamonds in the rough are located in areas where prices are still declining, so the investor must be sure to purchase the house, gut out the old, insert the new, and get out of the house before the declining price catches up with him and his profit.
Understanding that all homes are different, the sample below works for our hypothetical house only. Not for every potential flipper on the market. So here's your calculation.
Let's say the asking price is $199,000 for the house in its current condition. You see that it needs a new kitchen, 2 new baths, a new furnace, carpeting, painting inside and out and finally, some landscaping.
After your bids from your work crew come in, your fix up expenses come up to $47,000. Add the $47,000 to the $199,000 for your net expense: $246,000. Now you have the Realtor of choice calculate the price homes are selling for in the community that are remodeled or in excellent condition (because by the time you get done, yours should be in excellent condition). Let's say it's $285,000. Wow, it looks like you just picked up a cool $39,000. Well, not exactly.
First, you have to determine how long it will take to sell the house and calculate your carrying costs (monthly payment, construction loans, etc.) If you're in the same situation as most foreclosure markets, you need to figure about 4 ? 6 months carrying costs of preparation and marketing time. If your costs is about $1200 per month (for the mortgage plus utilities), you're now out $4800 (and your take has dropped to $34,200).
And don't forget your 7 percent selling costs for commission and closing expenses, which is roughly $19,950. So now your margin of profit is about $14,000 give or take a $1,000.
As you can see, this is how a lot of people get into trouble thinking that if they pick up a house for $85,000 under market price they'll be rolling in the dough quickly. Most experienced investors are looking for a margin of 50 percent of the value or $100,000 on a higher priced home.
Here at Burmaster Real Estate, between our Sales, Management and Construction division we can help you with the ENTIRE process and expedite it much faster than most investors do on their own.
Let Burmaster Real Estate assist you on your investment property purchase whether you plan on "flipping" or "holding" the property. Our experienced staff is waiting to help you with your investment dreams now!
SALES UPDATE
TREASURY MOVES TO OFFER REWARDS FOR SHORT SALES
The Treasury Department announced this month that it is close to finalizing a widened
incentive program to entice lenders and servicers to rely more on short sales as an
alternative to foreclosure.
"Presumably, the Treasury is trying to help facilitate a transaction that will result in less
loss to the lender than in the case of a foreclosure," the California-based John Burns Real
Estate Consulting said in a recent research note that reacted to the news.
That program ? part of an initiative unveiled in May ? expands on the Obama
administration´s Home Affordable Modification Program, which has had a mixed record
in mitigating housing losses in the U.S. economic downturn. Of the scores of troubled
homeowners eligible for loan modifications under the program, only 12 percent have
received refinances, according to Treasury figures.
Scant modifications have contributed to an avalanche of foreclosure filings, unleashing a
flow of repossessed housing in "shadow inventories" ? a property glut that could drive
home prices down and threaten the market´s recent modest gains. As DS News
previously reported, some analysts estimate that shadow inventory could rise as high as 7
million units, foreshadowing a new housing crash.
That prospect ? and the high costs of the foreclosure process ? are two reasons
government regulators are pushing short sales, in which defaulting homes are sold for
less than the outstanding mortgage balance. Because the homes are sold for what the
market will bear, the new owner is less likely to get "underwater," owing more than the
mortgage is worth. That´s a key predictor of a borrower´s likelihood to default.
"What they are trying to do is move some of these foreclosures in the pipeline, and bring
them to a resolution before (foreclosure) happens," Lisa Marquis Jackson of the
California-based John Burns Real Estate Consulting told Reuters this week. "Twelve
percent of these being modified isn´t enough to clean these up."
Even short sales come at a cost, however. Realtors complain that lenders are prickly in
short sale negotiations, often taking half a year to close them. Longer administrative
delays raise the likelihood of a prospective buyer losing interest in a deal.
Under the upcoming Treasury plan, as much as $10 billion of government funds
dedicated for loan modifications will be used to give lenders catch-up payments, to
assuage their fears that property values could continue to fall.
The payments still have to be worked out, but one Treasury proposal has been to offer
lenders $1,000 for going along with a short sale, and the same amount for deed-in-lieu
transactions with similar results.
Borrowers also would be in line for incentives ? possibly $1,500 in closing fees ? for
agreeing to a short sale or deed-in-lieu. Second lien holders could receive nearly as much
? $1,000 ? for signing away any claims in those sales, the Treasury said.
We will keep you updated as this unfolds...
Thoughts? Questions? Shoot me an email Gary@BurmasterRealEstate.com
FROM THE DESK OF GARY BURMASTER
LOAN MODS NOW EXCEEDING FORECLOSURES
Recently, during the NAHREP/AREAA conference there was a representative
from FHA who made an interesting statement.
Basically what was stated that for the first time last month the number of loan
modifications that had been done actually exceeded the number of foreclosure filings.
We thought this kind of interesting.
Which leaves us with a few thoughts?
1. So without these loan modifications would the number of foreclosure filings have
doubled?
2. Are loan modifications the wave of the future and will they become standard
industry practice replacing foreclosure as the means with which to deal with nonpaying
borrowers?
3. Is this a long term solution or just a means of delaying the inevitable? "Re-
Defaults"
4. How easy is it going to become to get a loan modification?
5. Knowing that Loan modifications are becoming so prevalent will this become a
stepping stone in a standard process? i.e. Loan mod ? to short-sale ? then to
foreclosure?
6. Will this become a government requirement prior to being able to foreclose ?
such as the "mediation laws" that many states have implemented?
This leaves me with quite a few questions; and I am sure you too!
I hope everyone enjoys their upcoming holidays; as always if you have any questions or suggestions please feel free to contact me.
Best Regards,
Gary Burmaster,CEO
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