Real Estate Investing in 2008: Are You Crazy – Well Maybe Not!

The latest data from the real estate industry shows a marketplace in steady decline and no bottom in sight. Residential home sales are in freefall mode with an expected 25% decline in the total number of home sales in 2007 versus 2006. Additionally, homes sales are currently off by more than 35% from the record year of 2005 when over 7.0 million homes sold.

Industry analysts estimate that we're on track to sell only 5 million houses nationwide for the entire 2007 year, which is the slowest pace since 1999. Equally sobering is the fact that at any given time there are about 4.4 million unsold homes for sale. Based on the number of available houses, it would take about 10.5 months to sell all the houses on the market right now.

It's not just the number of homes sold that is falling; it's also the sales price. The median, or average, home sales price is expected to dip below $211,000 for the year, which represents the first time since records have been kept that the year-over-year price of a home fell.

While home sales are plummeting and sales prices are falling, the only thing that seems to be rising is the number of foreclosures. During the first ten months of 2007, the foreclosure rate nationally surged by about 94%, which puts about 573,000 homeowners at risk of losing their homes.

As bad as things are right now, we might just be at the tip of the iceberg, because more than 2.2 million home loans are going to reset in the next year and a half as introductory and teaser rates end. Homeowners are faced with payments that are considerably higher than they had banked on – or budgeted for. Bush’s new homeowner bailout plan will save some, but will excluded most of the homes that are close or already in the foreclosure process.

Aright enough of the doom and gloom. With all financial bubbles there are many losers but a few big winners. Despite all of the above, now is the time to consider real estate investing. With prices down and motivated sellers everywhere real bargains are popping up and the long term returns on real estate should be outstanding in the coming years. Much of the risk has been taken out of real estate investing.

The housing market has undoubtedly changed, but I still think real estate is one of the best long-term investments you can make. I also think if you know what you're doing, there’s a whole lot of money to be made right now by investing in real estate.

The key to this opportunity is the ability to raise cash or credit quickly to make low all cash offers. The ability to have a combination of cash, credit lines and access to private lending will allow you to make low and compelling offers. In many cases, buyer will forced to accept any reasonable offer.

If you do this, you'll discover that this is possibly one of the best times in more than a generation in which to make tens of thousands of dollars -- or more -- by playing your cards right and timing your real estate purchases in a way guaranteed to help you build a fat real estate portfolio.


About the Author:

Mike Lautensack is a full-time real estate entrepreneur in Philadelphia, Pa and creator of the Private Lender PowerPoint Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE Real Estate Wealth Newsletter go to Real Estate Wealth Today or visit our blog at Real Estate Investment Blog.

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Home Prices Down 6.1% in Past Year!

Home prices in 20 major U.S. cities were down 6.1% on average in the past year as of October, according to the Case-Shiller price index released Wednesday by Standard & Poor's.

Since October 2006, prices in 10 cities fell 6.7% -- a record drop. The prior largest decline was 6.3% in April 1991.

"No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert Shiller, chief economist at MacroMarkets LLC and co-developer of the index.

Eleven of the 20 metro areas posted a record low annual growth rate, and six of the metro areas posted double digit declines. Also, all 20 metro areas declined from the prior month.
San Diego posted the largest decline of 2.6%.

Miami sustained the largest drop over the past year, with a decline of 12.4%. Next came Tampa, with a drop of 11.8%; Detroit, with a drop of 11.2%; and San Diego, with a drop of 11.1%.
Home prices are going to decline "considerably further" in coming quarters, likely reaching a double-digit pace on a year-over-year basis, according to Joshua Shapiro, chief economist for MFR Inc.

"Given conditions relating to mortgage financing, and the number of unsold homes that is piling up, all regions are likely to continue on a negative trend in the months ahead, and those with the greatest oversupply (at the bottom of the pack at the moment) will continue to fall by the most," wrote Shapiro in a research note.

Three areas -- Charlotte, N.C., Seattle, and Portland, Ore., -- were the only ones still experiencing positive annual growth rates in home prices, according to the report. Charlotte gained 4.3%, Seattle gained 3.3% and Portland gained 1.9%.

Both the 10-city and 20-city composites declined 1.4% from September -- their single largest monthly decline on record.

October's results mark the 10th consecutive month of negative annual returns, and the 23rd consecutive month of decelerating returns, according to the report.
Ruth Mantell is a MarketWatch reporter based in Washington.

The Top 10 Real Estate Sites for Novemebr 2007

These are the top 10 real estate sites for Novemeber 2007 and thier respective volumes

1. Realtor.com 6,915,000
2. Yahoo Real estate 4,847,000
3. MSN Real Estate 2,734,000
4. Rent.com 2,556,000
5. HomeAgain.com 1,997,000
6. Apartments.com 1,972,000
7. Zillow.com 1,827,000
8. HPC Interactive 1,688,000
9. Homes.com 1,640,000
10. Remax.com 1,429,000

Bush Signs Mortgage Tax Relief Into Law

President George W. Bush signed legislation into law on Thursday that will ease the tax burden for home owners who have had debt forgiven on a mortgage due to a foreclosure, short sale, or deed in lieu of foreclosure. The bill — Mortgage Forgiveness Debt Relief Act — has been supported by NAR since the 1990s.

"The president offered a Christmas present to many people who have suffered the agony and humiliation of losing their home," said NAR President Dick Gaylord in a statement. "Today's bill will ensure that any debt forgiven on a mortgage secured for a principal residence will not be taxed. This is very significant legislation."

The tax code used to require a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower had been forgiven. If the property was sold at foreclosure or was sold for less than what was borrowed, that difference was considered income and subject to the tax.

"We have always believed that it is clearly an issue of fairness and of not kicking people when they are down," Gaylord said. "By making the forgiven debt taxable income, individuals in already unfortunate situations most likely faced IRS actions because they did not have the money to pay the additional taxes. This legislation will relieve that additional burden and may also encourage families to work with their lender to negotiate terms, knowing they will now not be subject to an IRS bill."

Other Legislation Making Its Way to the President

Also, this week, the U.S. House passed two other bills — which have already passed the Senate — that could have a big impact on the real estate industry.

The bills are:

• Mortgage Insurance Tax Deductibility. This bill makes mortgage insurance premiums tax deductible for all mortgages originated for the next three years. Mortgage insurer Genworth Financial estimates that this tax break is worth $350 to the average taxpayer who has purchased a home with less than 20 percent down.

• Terrorism Risk Insurance Act. Federal backstops for terrorism insurance, passed initially after the Sept. 11 attacks, have been extended for another seven years. The bill also expands the program's protection by including domestic terrorism. The insurance and real estate industries have pushed for an extension, saying federal guarantees to help cover catastrophic losses are crucial to stimulating the investment needed to spur economic growth.

Bush Housing Plan Summarized

The Bush administration Thursday unveiled a plan designed to slow a wave of mortgage foreclosures. The architects of the plan say it could help 1.2 million troubled borrowers hold onto their homes.

The initiative, put together by the Treasury Department and the mortgage industry, sets detailed terms to identify homeowners who qualify for aid.

Here's how it will work:

• The plan will focus on subprime, first-lien, adjustable-rate mortgages, and particularly once-popular 2/28 and 3/27 loans.
• Under such plans, mortgage rates were fixed only for the first two or three years of a 30-year loan.
• Loans originated between Jan. 1, 2005, and July 31, 2007, whose interest rates will reset for the first time between Jan. 1, 2008, and July 31, 2010, would be eligible for a five-year interest-rate freeze.
• Only owner-occupied homes would qualify for a rate freeze.
• The plan is not binding on all mortgage industry players, but would stand as a set of best-practices and guiding principles.
• Some plan provisions might be applicable to troubled prime and Alt-A loans, though not second liens.
• Plan says target borrowers should be contacted about the program four months prior to the date their interest rates are set to be increased.
• Borrowers must be making timely payments at present and not have missed two months of mortgage payments in the previous year to qualify for a rate freeze.
• Borrowers eligible for rate-freeze may have a loan-to-value ratio greater than 97 percent and must be facing an interest rate spike, typically 10 percent or greater.
• The Borrower must be current on all payments.
• The borrower can not have a FICO score over 660 to be eligble.
• Mortgage servicers will help borrowers refinance in a way that avoids costly pre-payment penalties for abandoning the loan early.

The program identifies three general classes of troubled borrowers according to their ability to pay, two of which potentially would be eligible for relief:

1. Strong borrowers facing a rate-reset. They will be shepherded into conventional, fixed-rate mortgages, such as those available under the Federal Housing Administration.
2. Borrowers who may be eligible for a rate freeze. A formula comparing a borrower's current credit score with a score assessed at loan origination will help determine whether a borrower can get a "fast-track" rate freeze. Borrowers with credit scores of less than 660 that have not increased by 10 percent or more since the origination of the mortgage will be fast-tracked for a modification. Borrowers whose credit scores have climbed may still qualify for a freeze if they meet other tests.
3. Struggling borrowers who are deemed not able to afford even a modified loan. They would face foreclosure

Please tell me what you think the plan will do - if anything

Paulson's reveals more details about a national mortgage-rescue plan

WASHINGTON — Treasury Secretary Henry Paulson revealed more details about a national mortgage-rescue plan and proposed Monday to help state and local governments issue tax-exempt bonds to pay for mortgage refinancing. He also confirmed that he seeks to freeze temporarily the rates of tens of thousands of home loans that are about to adjust to higher rates.

Paulson told a national housing forum that Congress should authorize state and local governments to broaden their tax-exempt bond programs temporarily. Currently, states have authorization to issue tax-exempt bonds only to aid first-time homebuyers in designated distress zones. Paulson proposed to expand this to allow state and local governments to issue tax-free bonds to help in mortgage refinancing.

He also confirmed that he's trying to craft a plan that would prevent massive foreclosures when roughly 1.5 million adjustable-rate mortgages, or ARMs, reset to higher monthly rates next year. The affected ARMs involve subprime loans — those given to borrowers with weak credit histories.

The Treasury Department hopes to target holders of subprime ARMs who aren't yet behind on their payments but could be next year after their loans reset to higher interest rates.

Paulson stressed that there would be no government subsidy to borrowers or lenders.

The approach assumes that lenders will go along with making less money than they would have once the adjustable-rate mortgages reset — if borrowers were able to pay the higher rates.

The same holds true for investors who purchased the loans on the secondary mortgage market, where they were bundled together with other loans and sold as mortgage bonds.

The incentive for lenders and investors is to keep troubled loans from falling into foreclosure and to come up with an industry-wide plan that will keep losses at a minimum and allow the slumping housing sector to recover.

Paulson's plan seeks to rescue from ARM resets the borrowers "with steady incomes and relatively clean payment histories who could afford the lower introductory rate but cannot afford the higher adjusted rate," he said.

Just who these borrowers are and how they would be identified is still under discussion. It's a thorny issue because as lending standards deteriorated in late 2005 and 2006 at the tail end of a nationwide housing boom, many borrowers took out "no doc" loans — no documentation — for which they didn't reveal their income or inflated their stated income.

Speaking at the same forum, sponsored by the Office of Thrift Supervision, the heads of Countrywide Financial and Washington Mutual Inc., which have among the largest exposures to problem mortgages, publicly supported Paulson's plan.

Foreclosures Skyrocketing! Now is the Time to Get into the Real Estate Game

According to RealtyTrac, foreclosures have skyrocketed during the first ten months of this year by almost 94%, and if the current trend holds true it's possible that up to 2 million homeowners stand to lose their homes in the next year and a half. That's bad news for the homeowners, bad news for the economy, and a devastating reality for the banking industry that must take back all these homes.

Imagine Banks Having To Own And Maintain 2 Million Homes!

Does this create opportunity? Savvy real estate investors have the potential to realize unprecedented profits if they play their cards right by investing in bank owned properties commonly know as Real Estate Owned (“REO”). As banks continue taking more and more homes back into inventory, their level of desperation is rising. The truth is, they can't afford to keep these houses on their books indefinitely. They need to move these houses and they need to move them quickly. This is where you come in!

A lot of people make the mistake in assuming that they are out of luck when trying to negotiate with the bank, because banks typically bring in their own appraiser. Banks also try to stipulate that the house must sell for more than “fair market value”.

Too many investors with limited experience negotiating REO sales with banks decide to walk away from the table at this point with the mistaken assumption that there is no way the bank would accept their offer. A savvy real estate investor knows that this is when things are just beginning to get interesting!

You can win the REO negotiation game with the bank, but you have to sell the bank on why it makes sense for them to accept your offer. As part of your offer package to a bank, be sure to include a list of low comparative sales that fully support your offer price. There may be other higher sales in there area, but you are not required to included these in the list of comparable sales. Remember the bank can do its own homework, but you must present real sales that support your offer price.

Another really good way of getting banks to accept your offer is by providing them with a complete list of the extensive and costly repairs required to the house to bring it up to “sellable” condition. By casting the house in its most negative light, you dramatically improve your chances of getting the bank to accept your offer.

Another key to getting your offer accepted is to offer all cash and close in 30 days or less. The last thing the bank wants is to agree to a sale with you and then have to do the same thing over again because you could not get a mortgage. Banks are generally very motivated to get things off their books before the month ends so they can show their bosses and boards how good they are at moving real estate owned and solve the bank’s problems. So an offer that closes within the month is viewed very positive by a bank

In today's market, it's relatively easy to get a lender to go along with a REO sale for a discount of 15% to 30% off of fair market value. If you're a new investor and have limited cash and capital, this may be an outstanding way to buy at below market prices.

You can pick up a house at a good price, make a few repairs, and flip it pretty quickly for a pretty good profit or hold long term as a rental.

If you have a large line of credit with ready cash, or can plug into a network of private investors or hard money lenders, you can buy blocks of REO directly from the bank – I’m talking about 10, 15, or even 20 properties at a time – and get them for about $.50 on the dollar. You can see how quickly a good investment can turn into a great investment.

The unprecedented number of homes going back into inventory has banks scrambling to unload these properties as quickly as possible. By having access to cash you can grab as many of these money-making REO as you can get your hands on before they’re all gone.

Regardless of what route you take, there’s never been a better time to buy a property at a steep discount. If you're ready, willing, and able to do what it takes to capitalize on current market conditions, you can make a lot of money investing in REO.

About the Author:

Mike Lautensack is a full-time real estate entrepreneur in Philadelphia, Pa and creator of the Private Lender PowerPoint Presentation Kit. This kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your business. To learn more about this powerful step-by-step kit and to receive your FREE Real Estate Wealth Newsletter go to www.RealEstateWealthToday.com.