Renters are often in a quandary as to whether it makes sense to continue renting or buy a home. Buying a home makes more sense, particularly when taking a long-term view. Yes, even in the current hot real estate market.
Renting – Advantages
Renting can have a few advantages depending on the part of the country you live in. The primary advantage is your monthly rent payment may be less than an equivalent mortgage. A secondary advantage is the fact that maintenance and improvements to the property are the responsibility of the landlord. Still, these advantages pale in comparison to the disadvantages of renting.
Renting – Disadvantages
The disadvantages of renting are significant. If you have any opportunity to purchase a home or condominium, it almost always makes sense to do so.
The biggest disadvantage of renting is the loss of value. Assume you rent a residence for $1,000 a month and you live in the residence for two years. You will have paid a total of $24,000 in rent, a pure expenditure. The $24,000 is simply gone and you will have nothing to show for it other than the time you spent in the home. Compare this to what your landlord has gained.
Rent payments are closely aligned with a landlord’s mortgage payment. Using the above example, lets assume your $1,000 rent exactly equals the mortgage payment. For two years, you have indirectly paid the landlord’s mortgage, helping them build equity in the house by paying down the loan. In addition, the landlord has benefited from the appreciation of the property.
By appreciation, I simply mean the amount of increase in the value of the house. If the rental appreciated $20,000 in two years, the landlord has received a windfall. They may have seen a gain of $24,000 in appreciation and payments lowering the mortgage. As a renter, you have made this all possible. The landlord no doubt would like to thank you.
Now, what would have happened if you had purchased a similar home with similar financial figures? You would have seen an increase in YOUR wealth of $24,000, not the landlord’s wealth. If you renting, these figures should make your teeth grind.
If you are renting, you should be out shopping for your own property. After all, isn’t it time to make your money work for you, not a landlord?
Saturday, April 9, 2011
Rent To Own Homes Explained
If you desire to own your own home but are unable to secure conventional financing today, leasing a home with an option to buy may be your best option. A lease purchase can make your rent money work for you instead of making your landlord rich. Typically rent to own homes offer rent credits that reduce the final purchase price!
<b>Here's how it works:</b>
A home is made available via a standard lease with one important addition. Included is an option to purchase that home at a specified price over a specified time period (usually one or two years). In order to acquire that option, the renter/buyer must pay a one time, NON REFUNDABLE, fee called the option consideration. The exact amount is negotiable, but it is usually ranges from 2.5 to 7% of the purchase price. A fair contract will credit the buyer 100% of that option consideration upon closing of the sale. Furthermore a negotiated percentage of all rent payments should be applied toward the purchase price of the home. Some typical terms and conditions one might expect to find in a contract follows:
<ol>
<li>In order to receive a rent credit of 50%, time is of the essence. You MUST pay your rent on or BEFORE the due date of your lease (typically the 1st of the month). This means it must be received by the lessor (landlord) on or before the due date. Any payment received after the due date will result in a 0% rent credit for that month, a late fee may apply and you will not be building any equity.
<li>Maintenance is the responsibility of the Tenant Buyer. You are now renting to own and homeownership requires maintenance. This includes things like broken windows from stones or baseballs, clogged drains, peeling paint, broken appliances, burnt out bulbs, lawn work/snow removal, etc. If any major repairs are required to ensure habitability, the owner remains responsible.
<li>You need to have Option Consideration. Option Consideration is typically 2.5% to 7% of the purchase price of the home. It is a non-refundable payment, of which 100% is credited toward the purchase price, which binds the lease purchase contract.
</ol>
<b>Here's an example transaction:</b>
We have a nice 3 bedroom, 1 bath single family home located in a near west suburb of Chicago in a great neighborhood with good schools and a strong community. It has been freshly painted, cleaned, and is ready to move in. The purchase price will be $215,000. Monthly rent payments will be $1,500 and you will receive a 50% rent credit ($750 per month). You need between 2.5% and 7% in up front Option Consideration. Let's say your budget allows for $6,000 for Option Consideration. This equates to approximately 2.8% ($6,000/215,000). You will also need $1,500 for the first months rent for a total initial payment of $7,500.
Please note: Option consideration is not a security deposit. It is a non refundable payment toward the purchase price and is 100% credited toward reducing the price of the home.
Now suppose you paid all your monthly rent payments on or before the due date and you choose to buy the rent to own home at the end of the 12 month lease purchase contract. You will have $15,000 in equity before you even own the home! Here's the math:
Lease Purchase Price - $215,000
Less: Option Consideration paid at lease signing - $6,000
Less: 50% rent credit of $750/m * 12 months - $9,000
Net Purchase Price after credits - $200,000
You started with $6,000 and by paying your rent on time; your equity position grew 150% (another $9,000) for a total of $15,000 with 12 months. Not a bad deal! Many people find it nearly impossible to save $9,000 in a year with all the costs of living constantly on the rise.
<b>What's the catch?</b>
Now you may be thinking, "OK, what's the catch? This sounds too good to be true."
Answer, there is no catch.
There are many possible reasons a landlord/seller may want to enter into a rent to own agreement. Some reasons may be:
<ol>
<li>Needs to maintain ownership for at least one year for tax purposes.
<li>Unable to get a fair price due to local conditions.
<li>Tired of performing minor maintenance.
</ol>
Furthermore, when one sells a home through a realty service, a commission of 5-7% is typically paid. In the example above, this can cost more than the rent credit. Since realtors are usually not involved with this type of transaction, there is no commission and the landlord can afford to pass along the savings to tenant/buyer in the form of rent credits.
Also, when the Tenant becomes the Tenant Buyer (via rent to own), there is an immediate sense of pride in ownership. Tenant Buyers add value to the community. They take care of their future property, make improvements, and feel good knowing their rent money is working for them (reducing the purchase price) rather than just making their Landlord rich.
There are also many advantages for the renter:
<ol>
<li>Build equity toward home ownership.
<li>No bank or finance company involvement.
<li>Poor credit history may not be an issue.
</ol>
<b>Here's how it works:</b>
A home is made available via a standard lease with one important addition. Included is an option to purchase that home at a specified price over a specified time period (usually one or two years). In order to acquire that option, the renter/buyer must pay a one time, NON REFUNDABLE, fee called the option consideration. The exact amount is negotiable, but it is usually ranges from 2.5 to 7% of the purchase price. A fair contract will credit the buyer 100% of that option consideration upon closing of the sale. Furthermore a negotiated percentage of all rent payments should be applied toward the purchase price of the home. Some typical terms and conditions one might expect to find in a contract follows:
<ol>
<li>In order to receive a rent credit of 50%, time is of the essence. You MUST pay your rent on or BEFORE the due date of your lease (typically the 1st of the month). This means it must be received by the lessor (landlord) on or before the due date. Any payment received after the due date will result in a 0% rent credit for that month, a late fee may apply and you will not be building any equity.
<li>Maintenance is the responsibility of the Tenant Buyer. You are now renting to own and homeownership requires maintenance. This includes things like broken windows from stones or baseballs, clogged drains, peeling paint, broken appliances, burnt out bulbs, lawn work/snow removal, etc. If any major repairs are required to ensure habitability, the owner remains responsible.
<li>You need to have Option Consideration. Option Consideration is typically 2.5% to 7% of the purchase price of the home. It is a non-refundable payment, of which 100% is credited toward the purchase price, which binds the lease purchase contract.
</ol>
<b>Here's an example transaction:</b>
We have a nice 3 bedroom, 1 bath single family home located in a near west suburb of Chicago in a great neighborhood with good schools and a strong community. It has been freshly painted, cleaned, and is ready to move in. The purchase price will be $215,000. Monthly rent payments will be $1,500 and you will receive a 50% rent credit ($750 per month). You need between 2.5% and 7% in up front Option Consideration. Let's say your budget allows for $6,000 for Option Consideration. This equates to approximately 2.8% ($6,000/215,000). You will also need $1,500 for the first months rent for a total initial payment of $7,500.
Please note: Option consideration is not a security deposit. It is a non refundable payment toward the purchase price and is 100% credited toward reducing the price of the home.
Now suppose you paid all your monthly rent payments on or before the due date and you choose to buy the rent to own home at the end of the 12 month lease purchase contract. You will have $15,000 in equity before you even own the home! Here's the math:
Lease Purchase Price - $215,000
Less: Option Consideration paid at lease signing - $6,000
Less: 50% rent credit of $750/m * 12 months - $9,000
Net Purchase Price after credits - $200,000
You started with $6,000 and by paying your rent on time; your equity position grew 150% (another $9,000) for a total of $15,000 with 12 months. Not a bad deal! Many people find it nearly impossible to save $9,000 in a year with all the costs of living constantly on the rise.
<b>What's the catch?</b>
Now you may be thinking, "OK, what's the catch? This sounds too good to be true."
Answer, there is no catch.
There are many possible reasons a landlord/seller may want to enter into a rent to own agreement. Some reasons may be:
<ol>
<li>Needs to maintain ownership for at least one year for tax purposes.
<li>Unable to get a fair price due to local conditions.
<li>Tired of performing minor maintenance.
</ol>
Furthermore, when one sells a home through a realty service, a commission of 5-7% is typically paid. In the example above, this can cost more than the rent credit. Since realtors are usually not involved with this type of transaction, there is no commission and the landlord can afford to pass along the savings to tenant/buyer in the form of rent credits.
Also, when the Tenant becomes the Tenant Buyer (via rent to own), there is an immediate sense of pride in ownership. Tenant Buyers add value to the community. They take care of their future property, make improvements, and feel good knowing their rent money is working for them (reducing the purchase price) rather than just making their Landlord rich.
There are also many advantages for the renter:
<ol>
<li>Build equity toward home ownership.
<li>No bank or finance company involvement.
<li>Poor credit history may not be an issue.
</ol>
5 money saving tips when selling your home
Your home is undoubtedly the most valuable asset for the vast majority of us and selling it will cost thousands. Using the money saving tips in this article should reduce the cost of moving home.
Estate Agent fees vary, so shopping around and don’t forget to haggle and pay one off against the other. You should aim for 1% commission, also push then to limit the tie-in period to no more than 6 weeks, this gives then enough time to sell the house, but if they can’t you can move to another agent without going “multi-agent” which will increase the fee to about 3%+, a big no-no! Ensure you get a fair valuation, never tell an estate agent what other agencies have valued your house at. They will use this to manipulate its offer, often resulting in wide distortions.
It is false economy to go for the cheapest solicitors, so get recommendations from all the estate agents you speak to and remember to ask for the name of specific people, rather than just the legal firms. Give them a call and ask what their charges are, also note whether they are they friendly, helpful, and most important efficient? Fees are negotiable so haggle! Play off each one against the other to get yourself the best service at the best price.
Selling you house privately can save thousands. One in twenty vendors are now taking the DIY route which could save you thousands. That is a massive money saving tip, but there are a couple of downsides, basically “time and effort”. You could consider newspaper advertising, flyers and signs. Newspapers usually charge per line or per word so try to keep your advert as brief as possible without making it uninteresting. The simplest way would to sell your house yourself is to use one of the many online house selling service.
Obviously it is best to sell your house when the market is strong and demand is high, so keep an eye on the local property market. Generally, the market tends to be stronger in early and late summer than the rest of the year, so aim to sell your house then. Also avoid completing with your neighbours so if there are already a few “For Sale” signs on your street, it might be better to wait a bit.
Research has shown that a poor presented house can take longer to sell and may reduce the price by thousands. So get your paint brushes out, give your home a lick of paint and finish all of those DIY jobs which are outstanding. Also talk to the estate agent about adding value to your property it maybe worth spending a bit of cash to make some more. However, be careful not to over spend, you might not get your money back, so talk all planned improvements through with your estate agent.
If you are determined to save money when selling your home, do some more research, as they say knowledge is power. Websites such as <a href="http://www.maxxsave.co.uk%22%3emaxxsave%3c/a> specialise in offering <a href="http://www.maxxsave.co.uk%22%3emoney/ saving tips</a>, a brief browse around such sites will allow you to get all the information you need to save you a ton of money.
Estate Agent fees vary, so shopping around and don’t forget to haggle and pay one off against the other. You should aim for 1% commission, also push then to limit the tie-in period to no more than 6 weeks, this gives then enough time to sell the house, but if they can’t you can move to another agent without going “multi-agent” which will increase the fee to about 3%+, a big no-no! Ensure you get a fair valuation, never tell an estate agent what other agencies have valued your house at. They will use this to manipulate its offer, often resulting in wide distortions.
It is false economy to go for the cheapest solicitors, so get recommendations from all the estate agents you speak to and remember to ask for the name of specific people, rather than just the legal firms. Give them a call and ask what their charges are, also note whether they are they friendly, helpful, and most important efficient? Fees are negotiable so haggle! Play off each one against the other to get yourself the best service at the best price.
Selling you house privately can save thousands. One in twenty vendors are now taking the DIY route which could save you thousands. That is a massive money saving tip, but there are a couple of downsides, basically “time and effort”. You could consider newspaper advertising, flyers and signs. Newspapers usually charge per line or per word so try to keep your advert as brief as possible without making it uninteresting. The simplest way would to sell your house yourself is to use one of the many online house selling service.
Obviously it is best to sell your house when the market is strong and demand is high, so keep an eye on the local property market. Generally, the market tends to be stronger in early and late summer than the rest of the year, so aim to sell your house then. Also avoid completing with your neighbours so if there are already a few “For Sale” signs on your street, it might be better to wait a bit.
Research has shown that a poor presented house can take longer to sell and may reduce the price by thousands. So get your paint brushes out, give your home a lick of paint and finish all of those DIY jobs which are outstanding. Also talk to the estate agent about adding value to your property it maybe worth spending a bit of cash to make some more. However, be careful not to over spend, you might not get your money back, so talk all planned improvements through with your estate agent.
If you are determined to save money when selling your home, do some more research, as they say knowledge is power. Websites such as <a href="http://www.maxxsave.co.uk%22%3emaxxsave%3c/a> specialise in offering <a href="http://www.maxxsave.co.uk%22%3emoney/ saving tips</a>, a brief browse around such sites will allow you to get all the information you need to save you a ton of money.
5 Ground Rules for Home Buying Success
There are few purchases in life that carry the financial and psychological weight of buying a home. Whether you are buying your first home, moving up to your dream home, or downsizing your home and your life after the kids have gone, it is important to understand the ground rules for success in the world of buying a home.
Making the wrong decision in buying a home can have devastating and long lasting effects, while making a wise decision in home buying can greatly enhance the overall value of the investment. It is necessary to learn all you can about the world of home buying and mortgages before setting out to purchase the home of your dreams.
While there are plenty of web sites designed to help first time homeowners learn all they can, most financial experts say that there is no substitute for the good old one-on-one learning. Fortunately, most mortgage lenders, home inspectors and real estate agents will be able to provide this kind of one-on-one learning.
When buying a home it is often best to use a systematic approach as this is often the best way to be sure that all decisions are based on information and reason, not on impulse or emotion. Buying a home can be an emotional process, nevertheless it is imperative to keep your emotions under control and not let them cloud your judgment.
There are five basic ground rules when it comes to buying a home and shopping smart, and they are:
<b>#1 – Get your financing before you get your home</b>
There are few things in life as disappointing as losing out on the home of your dreams due to not being able to secure funding. While the desire to get out there are search for that great home is understandable, it is vital to line up the financing you will need before you start shopping for a home.
Getting the financing ahead of time has a number of important advantages, including knowing how much you can buy and gaining more respect from the listing agents. By knowing how much home you can afford before you shop you will avoid wasting your time looking at unaffordable properties, and the listing agent will be more than willing to show you the homes in your price range.
It is also important to take a good look at the various types of mortgage on the market before getting started in the home buying process. These days, mortgages come in far more choices than the typical 15 or 30 year. For that reason, potential home buyers need to understand how each type of mortgage works, and to gauge which mortgage is the best choice for their needs.
<b>#2 – Look at the community, not just the home</b>
It is a good idea to look at the entire community, instead of focusing on a single home. This can be a particularly important thing to consider for those moving to a new metropolitan area, as these buyers will be unfamiliar with the local climate and lifestyle. It is crucial to determine the areas of town that are most desirable, and to consider things like distance from work and local shopping opportunities.
We have all heard that location is the key consideration when it comes to real estate, and that is certainly the case. Buying a house in the wrong area can be a big mistake, and it is important to choose the location as well as the home. Potential buyers can learn a great deal about the nature of the various neighborhoods simply by driving around town, as well as by talking to other residents.
<b>#3 – Be fair with your first offer</b>
Trying to lowball a seller on the first offer can backfire, as can paying too much. It is important to carefully evaluate the local market, and to compare the asking price of the home with what similar houses in the neighborhood have sold for.
Comparing the sales of comparable homes, what are known as "comps" in the industry, is one of the best ways to determine what is fair, and to make sure that you neither overpay or underbid on the property.
<b>#4 – Always get a home inspection</b>
Always investigate the home for any possible defects before making an offer. Compared to the cost of the average home, the price of a quality home inspection is virtually negligible. Hence, get a good home inspection done before you buy.
To find the best home inspector, it is a good idea to seek out word of mouth referrals as many of the best home inspectors rely on word of mouth advertising.
<b>#5 – Do not alienate the sellers of the home</b>
Many real estate deals have fallen apart due to the personal animosity of the buyer and the seller. It is important to avoid alienating the seller of the home during the process, and to avoid nitpicking every little detail during the sale.
Keeping the good will of the seller will help the transaction go smoothly, and it will provide the best environment for seller and buyer alike.
Making the wrong decision in buying a home can have devastating and long lasting effects, while making a wise decision in home buying can greatly enhance the overall value of the investment. It is necessary to learn all you can about the world of home buying and mortgages before setting out to purchase the home of your dreams.
While there are plenty of web sites designed to help first time homeowners learn all they can, most financial experts say that there is no substitute for the good old one-on-one learning. Fortunately, most mortgage lenders, home inspectors and real estate agents will be able to provide this kind of one-on-one learning.
When buying a home it is often best to use a systematic approach as this is often the best way to be sure that all decisions are based on information and reason, not on impulse or emotion. Buying a home can be an emotional process, nevertheless it is imperative to keep your emotions under control and not let them cloud your judgment.
There are five basic ground rules when it comes to buying a home and shopping smart, and they are:
<b>#1 – Get your financing before you get your home</b>
There are few things in life as disappointing as losing out on the home of your dreams due to not being able to secure funding. While the desire to get out there are search for that great home is understandable, it is vital to line up the financing you will need before you start shopping for a home.
Getting the financing ahead of time has a number of important advantages, including knowing how much you can buy and gaining more respect from the listing agents. By knowing how much home you can afford before you shop you will avoid wasting your time looking at unaffordable properties, and the listing agent will be more than willing to show you the homes in your price range.
It is also important to take a good look at the various types of mortgage on the market before getting started in the home buying process. These days, mortgages come in far more choices than the typical 15 or 30 year. For that reason, potential home buyers need to understand how each type of mortgage works, and to gauge which mortgage is the best choice for their needs.
<b>#2 – Look at the community, not just the home</b>
It is a good idea to look at the entire community, instead of focusing on a single home. This can be a particularly important thing to consider for those moving to a new metropolitan area, as these buyers will be unfamiliar with the local climate and lifestyle. It is crucial to determine the areas of town that are most desirable, and to consider things like distance from work and local shopping opportunities.
We have all heard that location is the key consideration when it comes to real estate, and that is certainly the case. Buying a house in the wrong area can be a big mistake, and it is important to choose the location as well as the home. Potential buyers can learn a great deal about the nature of the various neighborhoods simply by driving around town, as well as by talking to other residents.
<b>#3 – Be fair with your first offer</b>
Trying to lowball a seller on the first offer can backfire, as can paying too much. It is important to carefully evaluate the local market, and to compare the asking price of the home with what similar houses in the neighborhood have sold for.
Comparing the sales of comparable homes, what are known as "comps" in the industry, is one of the best ways to determine what is fair, and to make sure that you neither overpay or underbid on the property.
<b>#4 – Always get a home inspection</b>
Always investigate the home for any possible defects before making an offer. Compared to the cost of the average home, the price of a quality home inspection is virtually negligible. Hence, get a good home inspection done before you buy.
To find the best home inspector, it is a good idea to seek out word of mouth referrals as many of the best home inspectors rely on word of mouth advertising.
<b>#5 – Do not alienate the sellers of the home</b>
Many real estate deals have fallen apart due to the personal animosity of the buyer and the seller. It is important to avoid alienating the seller of the home during the process, and to avoid nitpicking every little detail during the sale.
Keeping the good will of the seller will help the transaction go smoothly, and it will provide the best environment for seller and buyer alike.
5 General Trends in the California Real Estate Market to Watch 2011
Historically, the real estate trends of California have always been the precursors for the rest of the country. Which is why leading players of the real estate market keep a close watch on the Golden State’s real estate market conditions.
And whether you are a first time homebuyer, debating the viability of building your dream house in San Bernardino, or a real estate investor looking to sell condominium units in Los Angeles, you certainly want to know: When is it the optimum time to buy or sell?
Purchasing a house is a major investment. With judicious planning, this valuable asset will appreciate with each year.
But how do you get the big picture? Fortunately, real estate trends are predictable because these develop over a long period, unlike the stock market, which is rather volatile.
The first thing you will need to do is to read and track real estate articles: the market reports of the California Association of Realtors or the California Building Industry Association, and the briefs created by housing analyst companies.
Once you have identified the following key indicators you will have a better grasp of the general trends in California’s real estate market.
THE FIVE KEY INDICATORS TO WATCH
Interest Rates
When interest rates rise, buyers shy away. Conversely, lowered interest rates attract more buyers.
This year, interest rates in California are on an upswing. For example, thirty-year fixed mortgage rates, which averaged 5.71 percent in 2005, has risen to 6 percent levels in January 2006. And adjustable mortgage interest rates have moved up to 5 percent levels compared to 4.12 percent in 2005.
Building Permits
The higher the number of building permits issued, the higher the demand for houses.
Figures show that number of building permits issued for the year 2006, have fallen by 10 percent in comparison to last year’s figures. In terms of houses, that’s a decrease of 1,430 building permits compared to January 2005 figures, according to California Building Industry Association report.
Home Sales
This key indicator refers to the total number of homes sold. In the law of supply and demand, when there are few buyers, real estate prices fall.
The January 2006 figures of the California Association of Realtors reveal that the number of existing single-family detached homes sold, has gone down by 24.1 percent in comparison to sales for the entire year 2005.
Another factor to consider is the growing inventory of available houses in certain counties in California, which is changing the market dynamics. What was once a sellers market is slowly turning into a buyers market.
Loan Defaults
This refers to the failure of homeowners to pay their monthly mortgage fees. One downside to this is that many Californian homeowners are choosing to have a bad credit report, rather than to keep paying fees for a home whose value has been inflated by as much as 20 percent more.
Foreclosure Sales
Figures presented by DataQuick Information Systems, a housing analyst company, indicate that foreclosure activities in California have gone up by 19 percent in the last quarter of 2005. This is an increase of 3 percent compared to the third quarter of 2005, and is 4.6 percent higher when compared to 2004’s last quarter figures.
When foreclosure sales are on an upswing, consumer spending is down and consumer debt levels have risen. In the real estate market, this has meant that many financially strapped homeowners are selling their homes at lower prices. The other contributable factors are inflation, the rising prices of gasoline, federal budget deficit, and interest rates.
Concurrently, these key indicators confirm that although home sales levels in California are falling, the demand for houses remains strong and steady. Always do your due diligence before undertaking a purchase of property in California.
And whether you are a first time homebuyer, debating the viability of building your dream house in San Bernardino, or a real estate investor looking to sell condominium units in Los Angeles, you certainly want to know: When is it the optimum time to buy or sell?
Purchasing a house is a major investment. With judicious planning, this valuable asset will appreciate with each year.
But how do you get the big picture? Fortunately, real estate trends are predictable because these develop over a long period, unlike the stock market, which is rather volatile.
The first thing you will need to do is to read and track real estate articles: the market reports of the California Association of Realtors or the California Building Industry Association, and the briefs created by housing analyst companies.
Once you have identified the following key indicators you will have a better grasp of the general trends in California’s real estate market.
THE FIVE KEY INDICATORS TO WATCH
Interest Rates
When interest rates rise, buyers shy away. Conversely, lowered interest rates attract more buyers.
This year, interest rates in California are on an upswing. For example, thirty-year fixed mortgage rates, which averaged 5.71 percent in 2005, has risen to 6 percent levels in January 2006. And adjustable mortgage interest rates have moved up to 5 percent levels compared to 4.12 percent in 2005.
Building Permits
The higher the number of building permits issued, the higher the demand for houses.
Figures show that number of building permits issued for the year 2006, have fallen by 10 percent in comparison to last year’s figures. In terms of houses, that’s a decrease of 1,430 building permits compared to January 2005 figures, according to California Building Industry Association report.
Home Sales
This key indicator refers to the total number of homes sold. In the law of supply and demand, when there are few buyers, real estate prices fall.
The January 2006 figures of the California Association of Realtors reveal that the number of existing single-family detached homes sold, has gone down by 24.1 percent in comparison to sales for the entire year 2005.
Another factor to consider is the growing inventory of available houses in certain counties in California, which is changing the market dynamics. What was once a sellers market is slowly turning into a buyers market.
Loan Defaults
This refers to the failure of homeowners to pay their monthly mortgage fees. One downside to this is that many Californian homeowners are choosing to have a bad credit report, rather than to keep paying fees for a home whose value has been inflated by as much as 20 percent more.
Foreclosure Sales
Figures presented by DataQuick Information Systems, a housing analyst company, indicate that foreclosure activities in California have gone up by 19 percent in the last quarter of 2005. This is an increase of 3 percent compared to the third quarter of 2005, and is 4.6 percent higher when compared to 2004’s last quarter figures.
When foreclosure sales are on an upswing, consumer spending is down and consumer debt levels have risen. In the real estate market, this has meant that many financially strapped homeowners are selling their homes at lower prices. The other contributable factors are inflation, the rising prices of gasoline, federal budget deficit, and interest rates.
Concurrently, these key indicators confirm that although home sales levels in California are falling, the demand for houses remains strong and steady. Always do your due diligence before undertaking a purchase of property in California.
4 Steps To Real Estate Investing Success!
Real estate investing is always good and sometimes it's red hot. When it's hot dozens of real estate seminars begin rolling across the country and thousands of people spend thousands of dollars for investing education.
It's startling to learn that of all those thousands of eager folks who attend these seminars only about 5% buy even one investment house. Why? The real estate gurus sell the "sizzle" and make profiting from real estate sound easy. The truth is that it's simple, but not easy.
Here's a quick plan that will enable anyone to begin building financial independence.
There are basically four steps to investing in single family homes:
1. Buy homes below full market value. Yes, people really do sell homes for less than the home's full value. The key is to understand that most home owners will only consider a purchase offer that is all cash and within 5% to 10% of their asking price.
The successful investor learns to find financially distressed home owners who have no choice but to sell for less than market value. They have lost their job or been suddenly transferred; they are divorcing; they been living beyond their income; the family has been overwhelmed with medical bills and, not uncommonly these days, their money has gone to support a drug habit.
Those are examples of motivated sellers. They have to sell and they will accept something other than a conventional, all cash offer.
2. How do you find motivated sellers? You work at it! Like any business it is important to develop a little marketing plan. One that is simple, yet very effective, is the one that was proven 75 years ago by the Fuller Brush company; door to door sales.
You are selling your skill as a home buyer to people who must sell. Your are there when they need you and you have the skill to help them solve at least part of their problem. With door to door prospecting you will learn more and buy more homes quicker than any other method. However, most people just won't walk door to door for three or four hours per week. OK, there are other ways.
You can watch public notices for the announcement of foreclosure sales. Meeting with a home owner right after they've received a notice that they are about to lose their home allows you to deal with a very motivated seller. Other public notices that provide buying opportunities include probate, divorce and bankruptcy. You can follow the Homes For Sale listings in your local newspaper or Internet site.
You can telephone the names found in these notices or, and this is the least time consuming, send a postcard expressing your interest in buying their property. It will produce buying opportunities, just not as many as personal contact.
3. After you've found a motivated seller you must understand how to frame offers that provide benefits for both you and for the home owner. A good real estate investor quickly learns that this is not a business of stealing property, but of solving problems in a way that benefits the seller.
The home owner is in a tight spot of some kind and you can save them from public embarrassment and, in most cases, give them at least a little cash to get a new start.
No investor can afford to leave cash in every deal. No one but Bill Gates has that much available money. You must use creative techniques like, leases, option and taking over mortgage payments. Little or no cash is needed for those deals. You can find plenty of reasonable priced educational material on those subjects in book stores or on EBay. The same education that seminars sell for thousands of dollars.
4. You make your profit when you buy! Never make a purchase until you've carefully determined exactly how you will get to your profit. If you hold it as a long term investment will the monthly rental income more than cover the monthly mortgage payment? Will you sell the deal to another investor for fast cash? Will you do some fix-up and sell the property for full value? Will you quickly trade it for a more desirable property? Have a plan before you buy.
There you have four steps that even a part-time investor can execute in three to four hours per week. What's the missing ingredient? Your determination and perseverance. If you will unfailingly follow the plan for a few months you will be well on your way to financial independence.
It's startling to learn that of all those thousands of eager folks who attend these seminars only about 5% buy even one investment house. Why? The real estate gurus sell the "sizzle" and make profiting from real estate sound easy. The truth is that it's simple, but not easy.
Here's a quick plan that will enable anyone to begin building financial independence.
There are basically four steps to investing in single family homes:
1. Buy homes below full market value. Yes, people really do sell homes for less than the home's full value. The key is to understand that most home owners will only consider a purchase offer that is all cash and within 5% to 10% of their asking price.
The successful investor learns to find financially distressed home owners who have no choice but to sell for less than market value. They have lost their job or been suddenly transferred; they are divorcing; they been living beyond their income; the family has been overwhelmed with medical bills and, not uncommonly these days, their money has gone to support a drug habit.
Those are examples of motivated sellers. They have to sell and they will accept something other than a conventional, all cash offer.
2. How do you find motivated sellers? You work at it! Like any business it is important to develop a little marketing plan. One that is simple, yet very effective, is the one that was proven 75 years ago by the Fuller Brush company; door to door sales.
You are selling your skill as a home buyer to people who must sell. Your are there when they need you and you have the skill to help them solve at least part of their problem. With door to door prospecting you will learn more and buy more homes quicker than any other method. However, most people just won't walk door to door for three or four hours per week. OK, there are other ways.
You can watch public notices for the announcement of foreclosure sales. Meeting with a home owner right after they've received a notice that they are about to lose their home allows you to deal with a very motivated seller. Other public notices that provide buying opportunities include probate, divorce and bankruptcy. You can follow the Homes For Sale listings in your local newspaper or Internet site.
You can telephone the names found in these notices or, and this is the least time consuming, send a postcard expressing your interest in buying their property. It will produce buying opportunities, just not as many as personal contact.
3. After you've found a motivated seller you must understand how to frame offers that provide benefits for both you and for the home owner. A good real estate investor quickly learns that this is not a business of stealing property, but of solving problems in a way that benefits the seller.
The home owner is in a tight spot of some kind and you can save them from public embarrassment and, in most cases, give them at least a little cash to get a new start.
No investor can afford to leave cash in every deal. No one but Bill Gates has that much available money. You must use creative techniques like, leases, option and taking over mortgage payments. Little or no cash is needed for those deals. You can find plenty of reasonable priced educational material on those subjects in book stores or on EBay. The same education that seminars sell for thousands of dollars.
4. You make your profit when you buy! Never make a purchase until you've carefully determined exactly how you will get to your profit. If you hold it as a long term investment will the monthly rental income more than cover the monthly mortgage payment? Will you sell the deal to another investor for fast cash? Will you do some fix-up and sell the property for full value? Will you quickly trade it for a more desirable property? Have a plan before you buy.
There you have four steps that even a part-time investor can execute in three to four hours per week. What's the missing ingredient? Your determination and perseverance. If you will unfailingly follow the plan for a few months you will be well on your way to financial independence.
Tuesday, October 19, 2010
Cash For Keys
“CASH FOR KEYS” – INFORMATION FOR CONSUMERS AND DRE LICENSEES
The challenge to successfully market REO properties has given rise to a growing practice known as “cash for keys”. The Department of Real Estate (“DRE”) has been receiving questions and complaints from consumers about “cash for keys” solicitations. This article is intended to provide some guidance for consumers and licensees when involved in a “Cash for Keys” program to minimize any misunderstandings or violations of the law.
“Cash for Keys” Programs
When a lender takes a home back as a result of a foreclosure action, it becomes responsible for that property. The longer the lender has to wait to sell the property, and the more money it has to spend to repair damage to and/or to maintain the property, the greater will be its ultimate loss. The consequences of foreclosure and the looming legal eviction action affects the prior resident owner of the foreclosed property and/or the tenant(s) living in the property the same way – they must, unless there is an existing landlord-tenant rental or lease agreement which survives the foreclosure by law, or a written agreement with the new owner/lender to maintain or modify the tenancy, vacate the property in a relatively short period of time.
If the lender can make a deal with a tenant to pay for the tenant’s security and utility deposits, moving expenses, and maybe even temporary living expenses, and perhaps a bonus for a quick moving date, it would be in the lender’s interest to do so to avoid the inevitable minimum 3 to 6 month delay associated with formal legal eviction proceedings. In the many circumstances, the lender would most certainly prefer that the tenant agree to vacate the property within a certain number of days, leave the property in “broom-swept condition”, remove all debris from the interior and the yard, leave all fixtures and landscaping intact, and turn over the keys and garage door openers.
Practical Application of “Cash for Keys”
Generally, the amount offered to tenants vary and is usually negotiable. Anecdotal reports from those who have had experience with “cash for keys” programs report that $500 is generally the minimum and $5,000 the maximum amount offered to tenants for their keys.
The amount an owner is willing to pay for a tenant’s keys depends on several factors, including the value and physical condition of the property, and the plan(s) the lender has for the property. Other factors include the amount of time the tenant needs to move out.
Laws Protecting Tenants’ Rights With Respect to Foreclosed Properties
As recently as early 2008, in the absence of a written lease agreement requiring greater notice, California law required that an owner provide only a 30-day notice to a tenant to vacate the property for any reason (other than the failure to pay rent, which required a 3-day notice).
However, recent legislation has changed the rules.
Signed as an urgency measure in 2008, Senate Bill 1137 gives tenants at least 60 days after a foreclosure before they can be asked to vacate the property. The provisions of SB 1137 are due to sunset (be repealed) on January 1, 2013. To review a copy of the bill and get more details, please visit www.leginfo.ca.gov.
Federal legislation was enacted effective May 20, 2009, requiring property owners who have taken a residential property by foreclosure, to give their tenants at least a 90 day notice to vacate the property before beginning the eviction process. That federal law is applicable nationwide, and it is known as “Protecting Tenants At Foreclosure Act”. The law is found at Title 7 US Code section 701 (“the Act”). See http://thomas.loc.gov.
The Act provides that if a tenant is renting under a lease entered into before the notice of foreclosure was communicated to the tenant, the tenant may remain in the property until the lease ends, unless the owner sells the property to a purchaser who will occupy the property as his primary residence. In that case, the owner may properly give the tenant a 90day notice to vacate.
While the Act provides greater protection to tenants than State law, local law may provide even more protection. If a particular property is subject to local “rent control” or “housing assistance” laws, or so-called “just cause for eviction” ordinances, those laws may provide even greater protection than the Act itself. As an example, even the Act itself provides that the owner of a residential property which is subject to a “housing assistance contract”, and who has a lease with a tenant in that property, is subject to any additional protections in the housing assistance contract (this typically applies to “Section 8” properties).
Finally, there is a bill pending in the California legislature that would require tenants be told of their rights when the property they occupy is foreclosed. Senate Bill 1149 requires that tenants who are living in foreclosed homes be given notice of their rights and responsibilities under these state and federal laws by requiring a cover sheet be attached to any eviction notice that is served within one year of a foreclosure sale. The cover sheet would delineate the laws and rights a tenant may have in cases where the property he or she occupies is foreclosed upon. The bill also seeks to help protect tenants who would otherwise have a negative mark on their rental history by prohibiting the release of court records in a foreclosure-related eviction unless the plaintiff landlord prevails. Whether the bill is signed into law will not be known until October 2010.
What Renters and Resident Owners Can Do to Protect Themselves
Tenants and resident owners of foreclosed properties must take a significant amount of personal responsibility in this matter. They should become acquainted with federal and State law concerning foreclosures and tenant evictions, and also with local laws which apply to their particular situation. For example, in the City of Los Angeles, beginning December 17, 2008, tenants who are current in their rent payments can not be evicted because of a foreclosure. Many cities in California, including Santa Monica, West Hollywood, Beverly Hills, Oakland, and Berkeley, are subject to local “rent control” and/or “just cause for eviction” ordinances, which may provide even greater protections. Without a working knowledge of applicable local law, a tenant is at a distinct disadvantage.
Tenants and resident owners should make sure that any “cash for keys” offer is coming from the new owner of the property, which is often a lender or a government sponsored mortgage investor, such as Fannie Mae or Freddie Mac. Tenants and resident owners should insist on verifying the identification and authority of the person making the “cash for keys” offer. They must insist on receiving a written “cash for keys” agreement, and carefully read and understand that agreement. They should have a trusted and competent attorney, real estate licensee, family member or friend review the agreement and provide counsel concerning its duties and obligations.
Before signing the agreement, a resident owner should call his or her lender directly to confirm the authority of the person making the “cash for keys” offer. A tenant must be especially careful. The tenant should call his or her landlord and ask about the foreclosure and the identity and contact information for the new owner. It would not be unusual for the landlord to tell the tenant to continue to make rent payments directly to the landlord. That should not be done if the landlord is no longer the owner of the property. And finally, a tenant or resident owner should never hand the keys over unless the money is delivered. Cash is best. If paid by check, the tenant or resident owner should make certain the check is good and/or clears. If the keys are handed over, and the owner fails to pay the money, or if the owner’s check bounces, the written agreement should be sufficient to allow the tenant to prevail in a small claims action against the owner. But obtaining a judgment is far easier than collecting it. Without a written agreement, the chances of obtaining a judgment are substantially reduced.
Is A Real Estate License Required to Solicit “Cash For Keys”?
There is no way to generalize and declare that a real estate license is, or is not, required to solicit “cash for keys”. The particular facts of each transaction will determine the answer to that question.
Responsibility of Real Estate Licensees Who Engage in “Cash For Keys” Transactions
A licensee who solicits a “cash for keys” deal should identify him or herself to the resident owner or tenant when requested to, and provide his or her DRE license number. A consumer may look on the DRE website (www.dre.ca.gov) and, on the “Home” tab, under the heading “Consumers”, click on “License Status Check” to verify that person’s license status. Under that same heading, there is also a link to “How to File a Complaint”. One who has been solicited by a DRE licensee is encouraged to file a complaint with DRE if the solicitor has not acted fairly and honestly in the “cash for keys” transaction, or if the solicitor has engaged in any other unlawful conduct.
It should go without saying that California real estate brokers or salespersons who engage in “cash for keys” negotiations with tenants must be aware of the federal, State and local laws relating to foreclosed properties, and the tenants’ rights with respect to their tenancies or leasehold interests. The old saying “ignorance of the law is no excuse” really does apply in this context.
It should also go without saying that DRE licensees who solicit a resident owner or tenant to accept a “cash for keys” proposal must act fairly and honestly with respect to the transaction. Dishonest behavior, misrepresentations, harassment, failures to disclose material information to a resident owner or tenant, including failing to advise the resident owner or tenant of his or her rights with respect to eviction (that the licensee has knowledge of) as a result of foreclosure, or negligence, could possibly lead to license disciplinary action. A licensee who hires unlicensed persons to solicit cash for keys deals can also be liable for the dishonesty, misrepresentations, harassment and/or negligence of his or her unlicensed agent.
Conclusion
A fair and equitable cash for keys agreement will mutually benefit both the new owner of the property and the resident former owner or tenant residing in the property.
For tenants, resident owners, and Department of Real Estate licensees, knowledge of the law concerning this subject is power – power to avoid problems that are just looking for place to happen.
For resident owners and tenants in foreclosed properties, your only real safety lies in your taking the responsibility to protect yourself. Get the agreement and all other communications in writing. Have someone you trust look the written documents over. Make sure the solicitor is authorized to act for the real owner of the property. And do not give up the keys before you get the cash.
Additional Resources: The office of the California Attorney General issued a News Release on June 28, 2010, entitled “Brown Investigates Whether Tenants’ Rights Are Violated in Foreclosures”. You may wish to consult that Release for more information.
If you are a tenant or resident owner and believe your rights have been violated, you can contact the California Attorney General at www.ag.ca.gov, and/or the California Department of Real Estate at www.dre.ca.gov.
The challenge to successfully market REO properties has given rise to a growing practice known as “cash for keys”. The Department of Real Estate (“DRE”) has been receiving questions and complaints from consumers about “cash for keys” solicitations. This article is intended to provide some guidance for consumers and licensees when involved in a “Cash for Keys” program to minimize any misunderstandings or violations of the law.
“Cash for Keys” Programs
When a lender takes a home back as a result of a foreclosure action, it becomes responsible for that property. The longer the lender has to wait to sell the property, and the more money it has to spend to repair damage to and/or to maintain the property, the greater will be its ultimate loss. The consequences of foreclosure and the looming legal eviction action affects the prior resident owner of the foreclosed property and/or the tenant(s) living in the property the same way – they must, unless there is an existing landlord-tenant rental or lease agreement which survives the foreclosure by law, or a written agreement with the new owner/lender to maintain or modify the tenancy, vacate the property in a relatively short period of time.
If the lender can make a deal with a tenant to pay for the tenant’s security and utility deposits, moving expenses, and maybe even temporary living expenses, and perhaps a bonus for a quick moving date, it would be in the lender’s interest to do so to avoid the inevitable minimum 3 to 6 month delay associated with formal legal eviction proceedings. In the many circumstances, the lender would most certainly prefer that the tenant agree to vacate the property within a certain number of days, leave the property in “broom-swept condition”, remove all debris from the interior and the yard, leave all fixtures and landscaping intact, and turn over the keys and garage door openers.
Practical Application of “Cash for Keys”
Generally, the amount offered to tenants vary and is usually negotiable. Anecdotal reports from those who have had experience with “cash for keys” programs report that $500 is generally the minimum and $5,000 the maximum amount offered to tenants for their keys.
The amount an owner is willing to pay for a tenant’s keys depends on several factors, including the value and physical condition of the property, and the plan(s) the lender has for the property. Other factors include the amount of time the tenant needs to move out.
Laws Protecting Tenants’ Rights With Respect to Foreclosed Properties
As recently as early 2008, in the absence of a written lease agreement requiring greater notice, California law required that an owner provide only a 30-day notice to a tenant to vacate the property for any reason (other than the failure to pay rent, which required a 3-day notice).
However, recent legislation has changed the rules.
Signed as an urgency measure in 2008, Senate Bill 1137 gives tenants at least 60 days after a foreclosure before they can be asked to vacate the property. The provisions of SB 1137 are due to sunset (be repealed) on January 1, 2013. To review a copy of the bill and get more details, please visit www.leginfo.ca.gov.
Federal legislation was enacted effective May 20, 2009, requiring property owners who have taken a residential property by foreclosure, to give their tenants at least a 90 day notice to vacate the property before beginning the eviction process. That federal law is applicable nationwide, and it is known as “Protecting Tenants At Foreclosure Act”. The law is found at Title 7 US Code section 701 (“the Act”). See http://thomas.loc.gov.
The Act provides that if a tenant is renting under a lease entered into before the notice of foreclosure was communicated to the tenant, the tenant may remain in the property until the lease ends, unless the owner sells the property to a purchaser who will occupy the property as his primary residence. In that case, the owner may properly give the tenant a 90day notice to vacate.
While the Act provides greater protection to tenants than State law, local law may provide even more protection. If a particular property is subject to local “rent control” or “housing assistance” laws, or so-called “just cause for eviction” ordinances, those laws may provide even greater protection than the Act itself. As an example, even the Act itself provides that the owner of a residential property which is subject to a “housing assistance contract”, and who has a lease with a tenant in that property, is subject to any additional protections in the housing assistance contract (this typically applies to “Section 8” properties).
Finally, there is a bill pending in the California legislature that would require tenants be told of their rights when the property they occupy is foreclosed. Senate Bill 1149 requires that tenants who are living in foreclosed homes be given notice of their rights and responsibilities under these state and federal laws by requiring a cover sheet be attached to any eviction notice that is served within one year of a foreclosure sale. The cover sheet would delineate the laws and rights a tenant may have in cases where the property he or she occupies is foreclosed upon. The bill also seeks to help protect tenants who would otherwise have a negative mark on their rental history by prohibiting the release of court records in a foreclosure-related eviction unless the plaintiff landlord prevails. Whether the bill is signed into law will not be known until October 2010.
What Renters and Resident Owners Can Do to Protect Themselves
Tenants and resident owners of foreclosed properties must take a significant amount of personal responsibility in this matter. They should become acquainted with federal and State law concerning foreclosures and tenant evictions, and also with local laws which apply to their particular situation. For example, in the City of Los Angeles, beginning December 17, 2008, tenants who are current in their rent payments can not be evicted because of a foreclosure. Many cities in California, including Santa Monica, West Hollywood, Beverly Hills, Oakland, and Berkeley, are subject to local “rent control” and/or “just cause for eviction” ordinances, which may provide even greater protections. Without a working knowledge of applicable local law, a tenant is at a distinct disadvantage.
Tenants and resident owners should make sure that any “cash for keys” offer is coming from the new owner of the property, which is often a lender or a government sponsored mortgage investor, such as Fannie Mae or Freddie Mac. Tenants and resident owners should insist on verifying the identification and authority of the person making the “cash for keys” offer. They must insist on receiving a written “cash for keys” agreement, and carefully read and understand that agreement. They should have a trusted and competent attorney, real estate licensee, family member or friend review the agreement and provide counsel concerning its duties and obligations.
Before signing the agreement, a resident owner should call his or her lender directly to confirm the authority of the person making the “cash for keys” offer. A tenant must be especially careful. The tenant should call his or her landlord and ask about the foreclosure and the identity and contact information for the new owner. It would not be unusual for the landlord to tell the tenant to continue to make rent payments directly to the landlord. That should not be done if the landlord is no longer the owner of the property. And finally, a tenant or resident owner should never hand the keys over unless the money is delivered. Cash is best. If paid by check, the tenant or resident owner should make certain the check is good and/or clears. If the keys are handed over, and the owner fails to pay the money, or if the owner’s check bounces, the written agreement should be sufficient to allow the tenant to prevail in a small claims action against the owner. But obtaining a judgment is far easier than collecting it. Without a written agreement, the chances of obtaining a judgment are substantially reduced.
Is A Real Estate License Required to Solicit “Cash For Keys”?
There is no way to generalize and declare that a real estate license is, or is not, required to solicit “cash for keys”. The particular facts of each transaction will determine the answer to that question.
Responsibility of Real Estate Licensees Who Engage in “Cash For Keys” Transactions
A licensee who solicits a “cash for keys” deal should identify him or herself to the resident owner or tenant when requested to, and provide his or her DRE license number. A consumer may look on the DRE website (www.dre.ca.gov) and, on the “Home” tab, under the heading “Consumers”, click on “License Status Check” to verify that person’s license status. Under that same heading, there is also a link to “How to File a Complaint”. One who has been solicited by a DRE licensee is encouraged to file a complaint with DRE if the solicitor has not acted fairly and honestly in the “cash for keys” transaction, or if the solicitor has engaged in any other unlawful conduct.
It should go without saying that California real estate brokers or salespersons who engage in “cash for keys” negotiations with tenants must be aware of the federal, State and local laws relating to foreclosed properties, and the tenants’ rights with respect to their tenancies or leasehold interests. The old saying “ignorance of the law is no excuse” really does apply in this context.
It should also go without saying that DRE licensees who solicit a resident owner or tenant to accept a “cash for keys” proposal must act fairly and honestly with respect to the transaction. Dishonest behavior, misrepresentations, harassment, failures to disclose material information to a resident owner or tenant, including failing to advise the resident owner or tenant of his or her rights with respect to eviction (that the licensee has knowledge of) as a result of foreclosure, or negligence, could possibly lead to license disciplinary action. A licensee who hires unlicensed persons to solicit cash for keys deals can also be liable for the dishonesty, misrepresentations, harassment and/or negligence of his or her unlicensed agent.
Conclusion
A fair and equitable cash for keys agreement will mutually benefit both the new owner of the property and the resident former owner or tenant residing in the property.
For tenants, resident owners, and Department of Real Estate licensees, knowledge of the law concerning this subject is power – power to avoid problems that are just looking for place to happen.
For resident owners and tenants in foreclosed properties, your only real safety lies in your taking the responsibility to protect yourself. Get the agreement and all other communications in writing. Have someone you trust look the written documents over. Make sure the solicitor is authorized to act for the real owner of the property. And do not give up the keys before you get the cash.
Additional Resources: The office of the California Attorney General issued a News Release on June 28, 2010, entitled “Brown Investigates Whether Tenants’ Rights Are Violated in Foreclosures”. You may wish to consult that Release for more information.
If you are a tenant or resident owner and believe your rights have been violated, you can contact the California Attorney General at www.ag.ca.gov, and/or the California Department of Real Estate at www.dre.ca.gov.
Subscribe to:
Comments (Atom)