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| Risking It All To Get on the Property Ladder |
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Wednesday, September 5, 2007
Lenders are aware of the problems that increasing property prices are causing the first time buyer. They are also very aware of the problem that this causes them as mortgage lenders, as a considerable amount of their profit is made through interest paid to them on mortgages. Hence, if first time buyers are being priced out of the market, it leaves these lenders with a major financial problem. To try and find a solution to the problem, many lenders have come up with progressively more creative ways for the buyer to fund their purchase. Things such as buying with friends, getting lifetime mortgages, interest only mortgages or self certified mortgages are becoming increasingly more popular. These creative financing methods are at times, resulting in people being able to get far higher mortgages than they were previously able to. Not that long ago it was on heard of for anyone to get a mortgage five times their salary, where as now, it is becoming increasingly more common for buyers to get a mortgage five or six times their salary, by the use of methods such as self certifying themselves for a mortgage, as often no proof of income is required. Even if you have only been in the country for a few years, if you have built up a good credit rating and are aware of the mortgage deals available and the loopholes within them, it is fairly straightforward for you to obtain some sort of finance. The question is, is it worth the risk? Historically the answer has got to be a resounding yes. I have yet to meet many people who bought their property over seven years ago and have managed by hook or by crook to pay their mortgage, who regret their decision to buy. The topic of dinner conversation among these people is often how much equity they think they have accrued in their house. History bears out their enthusiasm by revealing that even though the property market has the occasional dip, it has always recovered, and normally goes into a period of rapid growth soon after the dip to make up for lost time. On the other hand, at the other end of the spectrum we have those who have had their homes repossessed or whose marriages and personal lives have been ruined in some way by the pressure of keeping up with high mortgage costs. If you look at how the dream of getting onto the property ladder has ruined their lives you could be forgiven for never wanting to take the plunge yourself. These two opposing viewpoints leave the first time buyer in somewhat of a quandary. However, perhaps this dilemma is caused or at least left more perplexing because we are asking the wrong question. If we changed the question from, would you risk it all to get on the property ladder? To, would you be prepared to do whatever it takes to stay on the property ladder? This might add some clarity. Those people, who have taken a gamble and obtained mortgages way beyond their means, but have coped and even thrived, tend to be the sort of people that would do anything to pay their mortgage. That could mean getting another job and working over 70 hours a week, it could mean learning another skill altogether and changing careers totally in order to obtain a pay rise, or it could even mean forgoing holidays and regular meals out for a number of months or even years. The people who don't tend to cope tend to fall into one of two categories, either they weren't prepared to make the sacrifices and do whatever it took to keep up the repayment on their mortgage, or alternatively they were hit by some disaster that they did not recover from. Maybe, they where made redundant or became ill or had an accident that meant their ability to work was affected in someway. Though, it could be argued that this second group is only a minority because even of those people who lose their job, if they had the single-minded determination to still pay their mortgage, or even to downsize if need be, it would still be achievable for the vast majority of them. So, again we come down to the key question. Would you be prepared to do whatever it takes to stay on the property ladder? The answer to this simple question may hold the key as to whether any particular individual will be able to hold onto their property or whether they will be forced to join the growing band of people who are facing bankruptcy and their homes being repossessed. ------------------------ Carlton Johnson is an entrepreneur, property investor and author who specialises in helping others to reach their financial and personal goals through property investing and Internet marketing. For more information on property investing and developing in the UK you can visit his website at: http://www.UKPropertysuccess.com Curb Appeal For Cabins? People are always wondering if curb appeal applies to areas where there really isn't a curb. The High Country in Georgia is a fine example of such a place. In an area where acreages are by far more common than other areas of the nation, curb appeal takes on a whole new meaning. With huge yards that are most of the time; larger than an average city block, it can be easy to let nature take over. Yards of this size that get out of control are tricky to bring back into shape so it is much easier to take care of them on a weekly basis so that the overgrowth does not get on top of you. People who are looking for homes in this kind of area are really looking for something out of the ordinary and different. These are people who are looking for the wide open spaces and fields that North Georgia can supply and they are ready for the work involved in maintaining such a property. So what can you do to your acreage to improve its selling chances? Well, break out the old lawn tractor and make sure that the whole property is nicely cut and trimmed. Make sure that any clearing of the property that needs to be done is done. Your property can be quite desirable if there is additional room to build or add on to the existing home. Another good idea if your property has a long wooded drive is to ensure that the drive is trimmed back, with no branches that will scratch the cars of prospective buyers. Also fix any large depressions or potholes in the drive as well. Beyond keeping the property itself in top-notch shape, the usual tenets of curb appeal should apply to the home itself. Cleanliness and care are always appreciated by any buyer. Make sure all the appliances and fixtures are in good working order. If the home is a more heritage style home then older appliances and wood stoves may be a part of the charm of the home. Always have these items checked to ensure they are working properly and safely and that there are no concerns regarding them. Austin Lansing is a representative of High Country Realty, specializing in the sale and purchase of North Georgia real estate. For info on homes in the Blue Ridge Mountains and other area of Georgia's beautiful high country, contact us today or visit us online at www.cbhighcountry.com The Real Estate Bubble The Real Estate Bubble Ross Craft is the author of "The Cookie Cutter Approach To A Preforeclosure Fortune" and a retired real estate investor who has studied and practiced in the field of real estate investing for a lifetime. Here is his perspective on the Real Estate Bubble. A lot of hoopla has been floating around the news media lately about the "bubble" theory of real estate. The "bubble theory" is, the theory that the real estate market is going to burst or take a dive in the same way the stock market dives from time to time. In my opinion, this theory for real estate has no merit. First, understand that there are four basic premises that differentiates the real estate market from the stock market. Once these four premises are established the idea of a national real estate bubble is not plausible. Here are the four premises: There is no national real estate market The real estate market is more or less disconnected therefore it doesn't explode or crash The "market" has limited relevancy to the shrewd investor The real estate "market" is based on local economies and the desirability of certain areas within the locality When people speak of the real estate economy, they are using nationally-based statistics. For example, Fortune magazine reported recently that since the early 1960s, average residential real estate values have never had a down year. This statement is true. But while these numbers are measurable, they do not reflect the intricacies of local real estate markets. The stock market is based on the national, even the world economy. The real estate market is based on local, and, in many cases, micro-local economies. What's happening in New York does not directly affect what's happening in Kansas City. True, certain factors such as interest rates affect all the markets. There really is no broad barometer to measure the entire housing industry in the U.S. Average prices, average new homes sold, and average homes built nationally have little relevance to your market. And, within a particular city that is doing well, there may be certain neighborhoods doing poorly for a variety of reasons, such as over-building of new homes. I have purchased houses (for flipping) in subdivisions that were well established and very stable. One property in Independence Missouri was in a nice quiet neighborhood and there had been only one sale in the past two years. It was difficult to establish a reasonable selling price. (See Case Study VI from the book "The Cookie Cutter Approach To A Preforeclosure Fortune") So while statistics, calculations, and economic factors are relevant, so is common sense: Take a look around and see what's really happening. Talk to real estate agents, investors, and lenders in your area for a better picture of what is going on. Be aware that when drug dealers move into a subdivision there is a rise in crime and an flight of home owners and a decrease in property values. In addition, other family concerns like the quality of schools in the area will effect housing prices. Don't look at broad nationwide, statewide, or even city-wide statistics. Be concerned with the average prices in the particular neighborhoods in which you buy houses, the average time on the market, and the changes in sales prices from last year to this year. Real estate markets do not "crash". We all remember October 19, 1987, known as "Black Monday." The stock market lost 22% of its value in one day--what investors call a "crash." There have been times when real estate values have taken 22% hits in certain cities and in pockets within cities. However, no real estate market dropped 22% in one day, one week, or even one month. In fact, the real estate "crash" of the late 1980s took several years to bottom out in most markets. Some people are theorizing the collapse of housing market by comparing it to the stock market. Some so called experts claim that the same mentality that caused the rise and collapse of the high-tech market will likely follow in the real estate market. Let's consider that argument for a moment... At its core, the housing market, like the stock market, is all about supply and demand; when more people want to buy than sell, prices go up, and vice-versa. However, the stock market is much more volitale than the real estate market. People often buy into stocks at the top of the market based on future potential, not inherent value. True, people are buying some properties in some markets for top dollar hoping it will go even higher. When this hope is not realized, the number of foreclosures in the area increase. When the average number of foreclosures increase, a bonanza is created for the schrewed preforeclosure investor. (check out "The Cookie Cutter Approach To A Preforeclosure Fortune") Think about this, if the neighborhood in which you live goes down 10% in value, are you going to move? Not likely, you'll just be bummed about it. You probably have friends as neighbors and familiarity with the store clerks in the area etc. In another example, I bought a house in the south part of the Kansas City Metro area in another nice quiet subdivision. This subdivision was about 20 years old. Again there had not been but one sale in the last three years. At the time there was one other house on the market. I priced my house at what I thought the traffic would bear. I put a for sale by owner sign in the lawn while I was doing the remodel. The realtors in the area jumped on it immediately. A bidding war ensued and I ended up selling the property for $5,000 more than I had originally asked. (For more on this deal see Case Study IV from the book "The Cookie Cutter Approach To A Preforeclosure Fortune") Believe me, the transaction cost and headaches like changing schools and church's is not worth it for most people. Contrast the stock market where a zillion investors can sell off in minutes by a click on their computers. Supply and demand also work differently in the housing market. Right now, demand outstrips supply in some hot real estate markets like Florida, Los Angeles and New York City. But, people are starting to realize that even if they sell for top dollar, they will have to pay top dollar to stay in the same market, so why bother? This phenomenon is causing limited supply and even HIGHER prices. In other words, the price increases are not necessarily about "irrational" demand, but rather limited supply. While the old expression, "Trees can't grow in the sky" is applicable, so is the old adage about land, "They ain't making any more of it." More people are moving into the U.S. than moving out, and so long as that trend continues, we're eventually going to run out of room. Likewise, if your city has limited space and more influx than out, prices are likely to stay where they are. Finally, there's the possibility that the traditional economic theories of bust and boom are simply flawed and no longer applicable. In other words, just because things have been going up in the housing market for so long, doesn't necessarily mean they will drop accordingly. Economic trends causing the market to remain strong Immigration. Millions are immigrants (we often think South America and Mexico, but thousands of immigrants are from former Soviet Block countries) are moving into the U.S. every year. If the government creates an amnesty program, we now have millions more potential home buyers who can legally show income and qualify for a loan. More demand, means higher prices. Migration Trends. Face it, baby boomers can't live on social security and pay the property taxes on their expensive homes any more. They've got three choices: continue working, take out reverse mortgages, or sell and move to a cheaper area. This mass-exodus is likely to increase demand in the cheaper retirement communities over the next ten years. Though prices have skyrocketed in South Florida, Phoenix, and Las Vegas, it's still a whole lot cheaper than Boston or New York City. On the other hand, when those boomers sell their home in Boston or New York they will need to invest that money in an expensive house or condo in the warmer retirement areas. As an example, last week I advised my sister in St. Louis to sell her paid for house on two acres in St. Louis Mo. for its $400,000 value, move to Florida and buy a $400,000 condo. Then take out a reverse mortgage and have $3,000 or $4,000 extra a month to live on. I expect the demand for more expensive retirement property to continue. Marriage Trends. People are getting married later, causing more single people to buy houses and condos. Easy to get a loan. Interest rates being so low for so long doesn't hurt either. But, it's more than low interest rates; it's how EASY it is to get a loan. Lenders figured out over the last fifteen years that instead of lending only to people with good credit, they can make money by lending to people with bad credit. Also, the Internet has led to fierce competition among lenders making it extremely easy and cheap to borrow money. What about rising interest rates? A lot of people are worrying about how rising interest rates will affect the market. Certainly, a rapid rise in interest rates may affect prices, since the higher the interest rate, the less house a buyer can afford. But, interest rates alone do not determine prices, but rather supply and demand. Higher interest rates can cause a shift in demand from higher priced houses to lower priced houses, but the need for housing will continue. So long as a particular area has more buyers than sellers, the values will remain strong. And, the Federal Reserve is well aware of the interest rates will impact the housing market. Interestingly, while the rise in interest rates in the U.K. has "cooled off" the housing market, there's been no collapse as predicted. Finally, keep in mind that even if a real estate market is reaching a peak within a particular area, it doesn't necessary mean it will necessarily collapse. The fact that real estate values in your city have climbed at twice the rate of inflation last year yet only half the rate of inflation this year doesn't mean the bottom is falling out. It is inevitable that the "boom" markets like San Diego, Las Vegas, and Phoenix will cool down. But, there's no evidence to justify a rapid decline in prices. Most experts agree that the likely scenario will be a "cooling off" where prices will remain flat, appreciating just above average inflation. The Federal Deposit Insurance Corporation (FDIC), which regulates banks that hold 30% of the credit risk on outstanding U.S. mortgages, doesn't appear concerned. In fact, FDIC researchers examined data from fifty-five metropolitan areas that saw a "boom" at various times between 1978 and 2004 and found only nine instances of a bust that followed. And, many of those busts were related to local market factors such as the oil market crash in Houston and Denver in the 1980s. Finally, keep in mind that just because your city’s average real estate values or home sales went down, doesn't mean it went down everywhere in the city. The problem is, people see headlines like "Average Real Estate Prices Falling" and panic. Declining values of $1,000,000 homes skew the average, so you can't pay attention to broad numbers. You need to look specifically in the price range and location of houses you are buying. The mass overbuilding of $500,000 homes in many markets won't generally affect the older $150,000 homes that average investors work. Much of the new home building across the country has NOT been low-end homes. The market has limited relevancy to the investor. If you buy and hold for the long term (fifteen or more years), you aren't likely to lose. Real estate values generally go up in the long run, with few exceptions. The same is probably true of the stock market in the long run, but there's one problem: There's no guarantee any company you invest in will be in business in fifteen years--not even Xerox, IBM or AOL! If you buy and flip properties quickly, the market appreciation or decline is not all that relevant to your profit. If the local real estate market is "hot," you can sell a property quickly, but you can't buy it as cheap. If the local real estate market is weak, you can steal properties, but you have to account for a longer hold period when you resell. It is relevant to know where your market is currently going (up or down), but don't worry too much about the "bubble" bursting; real estate markets DO NOT collapse in 3 to 6 months. Danger in interest-only loans? A lot of people are worried that if interest rates rise, many people who bought with interest-only or adjustable rate loans will lose their homes. Certainly, there are some people who are playing a very dangerous game with buying more house than they can afford. These people are playing right into the hands of the investors who are using "The Cookie Cutter Approach To A Preforeclosure Fortune". People who play the dangerous game of adjustable rate mortgages will increase the number of your potential customers if you are using "The Cookie Cutter Approach To A Preforeclosure Fortune" program. As a professional real estate investor, when you find a property with a loan to value ratio too high, go to the lender and execute a "short sale" where you buy the mortgage at a discount. If real estate is in a down cycle in the area you are looking to invest, you will have to make allowances for a potential lower sale price. If you can't find the super deal in that area right now, don't sweat it. You'll pick up a whole bunch more properties at the bottom of the real estate cycle. The bottom line is, the real estate market may go up, and then again, it may go down. So what? Don't bank on appreciation; buy properties below market, and have a "plan B" if it doesn't work out. Do this, and the you will see that the "bubble theory" is full of hot air. About The Author: Ross Craft is is a real estate investor and the author of “The Cookie Cutter Approach To A Preforeclosure Fortune". His internet site is http://www.win-winforeclosures.com Thanks for subscribing to his newsletter. It will cover several topics involving real estate investing. Some titles that are on the near horizon will deal with no down or low down payment real estate investing. Along with practical ideas on how to negotiate the deal etc. Come visit my site and learn about my cookie cutter approach to preforeclosure investing. I look forward to a long and profitable relationship. Ross Craft http://www.win-winforeclosures.com |
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