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RealVestFunding.com
A case
study – Do we have a deal?
Q. I was
wondering how you might structure a deal. I have
found a 120 unit apartment building that is
supposedly offered below appraisal. I haven't seen
their appraisal yet. It currently has 94% occupancy
with a GRM of 3.7 on the asking price of $2.5
million.
It has a first mortgage that can be assumed in the
amount of $1.7 million. It's at a really good rate
(5.34%); below what I probably could get at present.
It has a pretty good term too; amortized over 30,
due in eight, with a 1% transfer fee.
I would really like to assume the 1st, but the
owners will not carry a 2nd for the remaining
$800,000 (it is an estate liquidation). Any ideas on
where I can get the remainder?
Do you know of any lenders that I could approach
that would be willing to be in 2nd position for a
short period of time (2 to 3 years, maximum)? I feel
that I am asking the lenders the wrong questions
about the type of loan I need. I am aware of 1st
liens, 2nd liens, owner carry backs and hard money
loans, but I am not very familiar with all of the
other different products that may be available to
me. I have heard of bridge loans, Mezzanine
financing and a few other ones, but don't know much
about them. Any help would be appreciated!!
Thanks,
Joel
A. There is second mortgage
money available for apartments but not with zero
down. Most of them want 20% or more down. The hard
money and bridge loan people will work with you
without a down payment if you have a super bargain.
If the total debt to loan ratio will be 70% or less,
they will look at it. It is also possible to get a
loan without a down payment if you have super upside
potential. And the more you are relying on what you
can do with the property once you own it, the more
important your resume is.
How much of a discount are you getting from the
appraisal? Dollar and percentage. Is there upside
potential and how much? You might also be able to
bring in partners. By the way, GRM or Gross Rent
Multiplier is a very poor measure of value. (You
need to study our Income Property Boot Camp CDs.)
What is the cash on cash return and the cap rate? If
there is high cash on cash return and lots of
potential for upside then it is an easier story to
sell. Keep me informed.
BZ
Freedom Equity Group Hearsay
MORE HELP IS ON THE WAY!
We
just learned about some great news from Bill
St.Clair at Freedom Equity Group. They have
hired a Support Person to work in the San Jose, CA
office to field questions about anything to do with
the loan process. Until now, Karen and I have
done our best to help you, but, even we couldn't
answer all of your questions and address all of your
issues. Now you can take those "out of the
box" and "what if?" and "will this fly?" questions
to a single person that will serve as a liaison of
sorts between you and the loan processors.
Now
you can even more aggressively grow your Mortgage
Loan Originator Business because we have another
person at Freedom Equity Mortgage on our side to
help us! For more information, contact our
office at
reitbootcamp@kingwoodcable.net.
ZickHomeLoans.com
Record
Number of Metros Show Double-Digit Home-Price Gains
WASHINGTON (February 15, 2005) – A record number of
metropolitan areas showed double-digit annual price
appreciation in median existing-home prices in the
fourth quarter, and the overall pace of annual price
growth accelerated from the third quarter, according
to the latest survey by National Association of
Realtors®.
The association’s fourth-quarter metro area home
price report, covering 129 metropolitan statistical
areas,* shows 62 areas with double-digit annual
increases in median existing-home prices and only
four areas posting modest price declines. The
previous record was 49 metros showing double-digit
price appreciation in the second quarter of 2004.
The national median existing-home price was $187,500
in the fourth quarter, 8.8 percent higher than a
year earlier when the median price was $172,400. The
median is a typical market price where half of the
homes sold for more and half sold for less. In the
third quarter of 2004, the national annual rate of
home-price appreciation was 7.5 percent.
View charts
David Lereah, NAR’s chief economist, said it’s a
simple matter of supply and demand. “We ended 2004
with a record low supply of homes on the market,” he
said. “With more buyers than sellers nationally,
what we’re seeing is a natural pressure on home
prices as buyers compete to bid on available
properties. Fortunately, the historically low cost
of debt service on a home purchase means that we
have a comfortable buffer in most of the country
because the typical family can afford to buy a home
well above the median price.”
The strongest price increase was in the Las Vegas
area where the fourth quarter price of $281,400 rose
47.3 percent from a year earlier. Next came the
Riverside-San Bernardino area of California at
$322,400, up 34.7 percent from the fourth quarter of
2003. Third was the West Palm Beach-Boca
Raton-Delray Beach area of Florida, with a fourth
quarter median price of $338,800, up 34.0 percent in
the last year.
Lereah said analysts looking for signs of weakness
will be disappointed. “In the handful of areas with
price declines, none had previously experienced
rapid price growth,” he said. “In fact, they were
all lower-cost areas experiencing one or both of the
conditions necessary for temporary price softness –
local economic weakness, mainly in jobs, or a large
supply of homes available in the local market.”
NAR President Al Mansell, CEO of Coldwell Banker
Residential Brokerage in Salt Lake City, said market
performance has contradicted predictions of a
home-price bubble for four years now. “Although
temporary price declines are always possible under
the right conditions, people who were scared off by
faulty predictions have missed out on the strongest
housing market in U.S. history,” he said.
“Considering rents on comparable properties
generally are higher than mortgage payments, and
housing returns generally are multiples of a down
payment, a little perspective may help. The
population is growing faster than the supply of
homes, the cost of construction rarely declines and
the long-term prospects are positive – one of the
largest generations in U.S. history, who believe
housing is a good investment, is just entering the
years in which people typically buy their first
home.”
Median fourth-quarter metro area resale prices
ranged from $87,800 in Beaumont-Port Arthur, Texas,
to more than seven times that amount in the San
Francisco Bay area where the median price was
$656,700. The second most expensive area in the
United States was Anaheim-Santa Ana (Orange Co.,
Calif.) at $627,500, followed by San Diego at
$569,900.
Other low-cost markets include Springfield, Ill.,
the second least-costly area, at $93,600, and
Buffalo-Niagara Falls, N.Y., with a fourth-quarter
typical resale home price of $94,800.
Regionally, the strongest increase was in the West
where the median resale price was $278,000 during
the fourth quarter, up 14.1 percent from a year ago.
After the Las Vegas and Riverside-San Bernardino
areas, the strongest increase in the region was in
Sacramento, with a fourth-quarter median price of
$343,800, up 31.5 percent from a year earlier,
followed by the Reno, Nev., area, where the median
price of $286,200 rose 25.5 percent. Twelve other
Western metro areas also experienced double-digit
price gains including Los Angeles, San Francisco,
Anaheim-Santa Ana, San Diego and Honolulu.
In the Northeast, the median resale price during the
fourth quarter was $222,500, rising 13.5 percent
from a year earlier. The strongest increase in the
region was in the Atlantic City, N.J., area, at
$216,500, up 18.9 percent from the fourth quarter of
2003, followed by New Haven-Meriden, Conn., with a
median price of $264,600, and Monmouth-Ocean, N.J.,
at $338,400, both up 16.5 percent, and the
Albany-Schenectady-Troy area of New York, where the
typical resale price of $168,600 rose 16.0 percent
from the fourth quarter of 2003. Eleven other
Northeastern metros had double-digit price gains
including the New York City area, Philadelphia,
Hartford, Buffalo-Niagara Falls and Providence.
In the South, the median existing-home price of
$169,700 was 8.0 percent higher than the fourth
quarter of 2003. After the West Palm Beach-Boca
Raton-Delray Beach area, the strongest increase in
the South was in the Bradenton area of Florida,
where the fourth quarter median price of $245,700
rose 32.0 percent from a year earlier. Next came the
Melbourne-Titusville-Palm Bay area of Florida at
$172,200, up 30.5 percent, and the Washington, D.C.,
area, where the median price of $370,800 was 26.9
percent higher than a year earlier. Twenty-two other
Southern metro areas experienced double-digit
increases in their median price including Baltimore;
the Florida metro areas of Miami-Hialeah, Orlando,
Ft. Lauderdale-Hollywood-Pompano Beach, and
Tampa-St. Petersburg-Clearwater; New Orleans;
Norfolk-Virginia Beach-Newport News, Va.; and
Birmingham, Ala.
In the Midwest, the fourth-quarter median
existing-home price of $151,000 increased 6.9
percent from the same period in 2003. The strongest
increase in the Midwest was in the Waterloo-Cedar
Falls area of Iowa, where the median price of
$97,900 was 13.2 percent higher than the fourth
quarter of 2003. Next came Springfield, Mo., at
$109,100 in the fourth quarter, up 12.4 percent, and
the Milwaukee area $199,300, up 11.3 percent in the
last year. Aurora-Elgin, Ill., and Fargo, N.D., also
had double-digit gains.
The National Association of Realtors®, “The Voice
for Real Estate,” is America’s largest trade
association, representing 1 million members involved
in all aspects of the residential and commercial
real estate industries.
Copyright National
Association of REALTORS®, Reprinted with permission.
For more information
contact:
Walter Molony, 202/383-1177
wmolony@realtors.org
Lucien Salvant, 202/383-1176
lsalvant@realtors.orG
Second-Home Market Surges, Bigger Than Shown in
Earlier Studies
Ed. Note: The following
article indicates a major increase in the number of
homes purchased for investment in 2004.
WASHINGTON (March 1, 2005) – A
new study shows sales of second homes surged in
2004, and that investment property and vacation
homes make up a significant portion of the overall
housing market, accounting for more than one-third
of residential transactions, according to the
National Association of Realtors®.
The new study, based on two surveys, shows that 23
percent of all homes purchased in 2004 were for
investment, while another 13 percent were vacation
homes. In addition, there was a record of 2.82
million second home sales in 2004, up 16.3 percent
from 2.42 million 2003. The investment-home
component rose 14.4 percent to 1.80 million sales in
2004 from 1.57 million in 2003, while vacation-home
sales rose 19.8 percent to 1.02 million in 2004 from
850,000 in 2003.
David Lereah, NAR’s chief economist, said earlier
studies underestimated the number of second-home
sales because a very small percentage of surveys
mailed to second-home addresses were returned. “We
found excellent results for studies looking at
owner-occupied homes, but this is the first time
anyone has come up with a methodology for capturing
a representative market share for vacation- and
investment-home owners,” he said. “In fact, given
the size of the market, we can assume that many
individual owners have more than one investment
property.”
Previous studies had indicated the total stock of
second homes purchased for investment or recreation
was 6.6 million units. “The lion’s share of
second-home sales in earlier studies were vacation
homes, and previously reported figures for the total
number of second homes in the U.S. coincide with the
current figures we have for the number of vacation
homes,” Lereah said. “However, we’ve seen a shift
over the last few years with a growing number of
second-home buyers purchasing primarily for
investment. This led us to a new examination and
understanding as to how much larger investment homes
are as a share of the overall housing market.”
An examination of 2003 data from the Census Bureau
shows there are 43.8 million second homes in the
United States, including 6.6 million vacation homes
and 37.2 million investment units, compared with
72.1 million owner-occupied homes.
“In essence, our definition of second homes has
changed with the buyer shift toward investment
property,” Lereah said. “In examining Census data to
determine the number of investment units, we see
that second homes are a much larger share than the
conventional mind-set of them being mostly vacation
homes.”
NAR has no data to differentiate between individual
or corporate investment-home owners of the existing
housing stock. The sales figures shown in the study
are for individual buyers, and the market share of
investment purchases rose 1 percentage point in 2004
from 22 percent of transactions in 2003. An e-mail
survey of home buyers, incorporating new
methodology, was used to determine second-home sales
data.
A second survey, conducted by mail and used for
demographic and related data in the 2005 National
Association of Realtors® Profile of Second-Home
Buyers, underscores the e-mail findings.
NAR President Al Mansell, CEO of Coldwell Banker
Residential Brokerage in Salt Lake City, said the
market is evolving. “We’re finding that the
distinctions between vacation- and investment-home
buyers are such that we’re really looking at two
very different markets,” he said.
For example, 86 percent of vacation-home buyers do
not rent their property compared with only 21
percent of investment buyers. It appears that the
majority of investment homes are actually a renter’s
primary residence, and only 10 percent of investment
buyers intend to use their second property for
recreational purposes.
The typical vacation-home buyer is 55 years old and
earned $71,000 in 2003, while investment-property
buyers had a median age of 47 and earned $85,700.
For properties purchased between mid-2003 and
mid-2004, the median price of a vacation home was
$190,000 compared with $148,000 for investment
homes. In contrast with the last available full-year
price data in 2001, vacation homes have appreciated
12.8 percent from $168,500, and investment homes
have risen 25.4 percent from $118,000.
Nearly one out of five second homes will become
primary residences after retirement – 27 percent of
vacation homes and 14 percent of investment
property. “In addition, buyers were looking to
diversify portfolio investments,” Mansell said.
“This is now the most frequently cited motivation
for purchasing a second home.”
In listing the reasons why they bought second homes,
respondents said there were some differences
depending on the type of home. Overall, 30 percent
of buyers wanted to diversify investments, 28
percent sought rental income (37 percent investment
vs. 7 percent vacation homes), 14 percent wanted a
personal or family retreat (29 percent vacation vs.
8 percent investment), 6 percent planned to use for
vacations (16 percent vacation vs. 2 percent
investment), and 5 percent had extra money to spend.
“Because the typical second-home buyer is a baby
boomer, it’s likely over the next decade that
second-home sales will remain historically high,”
Lereah said. “The boomers are still in their peak
earning years and have both the wherewithal and the
desire to purchase vacation homes and investment
properties.”
Ninety-two percent of all second-home buyers see
their property as a good investment. In addition, 38
percent said it was very likely they’d purchase
another home within two years, breaking down to 47
percent of investment buyers and 16 percent of
vacation-home buyers.
Investment properties of recent buyers tend to be
located close to the primary residence of owners,
with a median distance of 18 miles, while vacation
home buyers were at a median distance of 49 miles.
The typical vacation home purchased during the
period was a single-family detached home, accounting
for 83 percent, with a median size of 1,290 square
feet. Half of all buyers said their vacation home
was smaller than their primary residence, 13 percent
said about the same and 37 percent reported it was
larger.
The typical investment property also was a
single-family home, 79 percent, with a median size
of 1,700 square feet. Sixty-two percent of recently
purchased investment homes were smaller than the
owner’s primary residence.
In searching for a second home, 83 percent of buyers
used real estate agents. When asked where they first
learned about the home purchased, 31 percent said a
real estate agent; 24 percent a yard sign; 15
percent from a friend, neighbor or relative; 8
percent knew the seller; 7 percent from a builder; 6
percent on the Internet; and 2 percent from a
newspaper or TV ad.
Typical buyers searched seven weeks to find their
second home and looked at six properties.
Eighty-three percent financed with a mortgage and
made a median down payment of 22 percent. Although
45 percent use savings for a down payment, 29
percent used equity from a previous home.
Methodology
The second-home study was based on two surveys. To
determine demographics, price data and the process
for buying, NAR mailed an eight-page questionnaire
to a national sample of 100,000 recent homebuyers
who purchased their homes between mid-2003 and
mid-2004 based on county records. The survey
generated 8,205 usable responses; the response rate
was 8.2 percent. Data in this report includes only
survey data from respondents who indicated that they
purchased a vacation home or investment property;
this data was underrepresented in the overall sample
due to smaller return rates.
A second survey to determine market share and to
extrapolate sales data was conducted in January 2005
by e-mail. That survey captured data for 3,371 home
purchases in 2003 and 2004, with roughly equal
samples for each year; data were weighted to
correspond with demographic findings in the mailed
survey. Because the findings showed a much higher
volume of second-home sales than earlier believed,
NAR examined Census Bureau data from the Housing
Vacancy Survey and the Residential Finance Survey
and found a strong correlation in comparing the
differences between owner-occupied and
renter-occupied housing, as well as data for
occasional use and vacant housing.
The 2005 National Association of Realtors® Profile
of Second-Home Buyers can be ordered by calling
800/874-6500. The cost is $35 for NAR members and
$50 for non-members.
The National Association of Realtors®, “The Voice
for Real Estate,” is America’s largest trade
association, representing 1 million members involved
in all aspects of the residential and commercial
real estate industries.
Copyright National
Association of REALTORS®, Reprinted with permission.
For more information
contact:
Walter Molony, 202/383-1177
wmolony@realtors.org
Lucien Salvant, 202/383-1176
lsalvant@realtors.orG
Zick Stuff
RIGHT OF REDEMPTION
Q. I
recently heard about a strategy to negate the right
of redemption which is established by CH 34 of the
Texas Property Code which says the homeowner has six
months or two years (depending upon whether it is a
homestead or not) to redeem his home from the buyer
who purchased it at the Constable's Auction (a tax
sale, not a mortgage foreclosure). Basically, you
buy the property at the Constable Auction and then
negotiate a deal with the homeowner where you pay
him some amount of money in exchange for him signing
an "Assignment of Redemption Right" letter. You are
now assured of owning the property and can keep it
or sell it!
Ever hear of any such letter? Do you know anything
about what should be in the letter?
Thanks,
Pat
A. Not
only have I heard of it I’ve told students to do it
and they have. However, I don't have a formally
drawn letter. If I needed one I would ask my
attorney for it. You also might try calling the
title company you use and ask them, "If I bring in a
deed from a seller to me saying they deed me their
redemptive right (or a quit claim deed) will I get
clear title if I also purchased it at a tax sale?"
I checked with Quincy Long
(qlong@entrusttexas.com) with Entrust and he
says he has personally done this with a warranty
deed and got title insurance on the property.
BZ
CLOSING? WHAT CLOSING?
Q.
Hi Barney, I am a new student of yours and have a
question. I am currently listening to the
options/lease options CD set and I understand about
98% of what you teach. I am looking forward to using
your advice when doing my first deal. The question I
have is about closings and a lease with the option
to buy. You stumped me when you talked about having
the money for the security deposit and the option at
the closing. What closing? I didn't know you had a
closing on a lease/lease option in the state of
Texas. I understand the concept of closing in two or
three days if it were a purchase, but if it’s a
master lease with option to buy, is there actually a
closing at a title company? Also the concept implies
that a mortgage payment is skipped since they are
usually due somewhere between the 1st and the 15th.
The owner will still have to make that payment, and
since I will be on a master lease with him and I
will be taking the rents, where is his payment going
to come from?
I believe I understand the concept pretty well, then
I get a question like this. I am not a new investor,
so this sounds pretty dumb even asking this
question, but it is quite a point of consternation
with me at the moment.
Thanks,
Joel
A.
Many people are easily confused by this. I have
heard it called first and second closing. The
‘first’ closing is when you sign the lease option
documents and you give them the cash to bring things
current. The ‘second’ closing is when you finally
buy the property, which may or may not be at a title
company. So we were using the word closing to
describe the initial transaction. As to how much you
pay, that will be decided between the two of you. If
a next payment has to be made, that should be agreed
upon. Hope this helps.
BZ |
