FHA Flip Rule

by Rod Sager (Originally posted on 10-17-2014)

Many people are using FHA loans these days. The FHA offers low government backed rates but has the problem of high mortgage insurance payments. FHA however offers guidelines that help people who have tighter budgets because they allow otherwise well qualified borrowers to exceed the standard debt to income ratios if other compensating factors exist.

This market has brought many home flippers into the fold.The large quantity of foreclosures that followed the market crash led to an abundance of investors flipping homes. The FHA has a rule loosely called the "Flip Rule" that requires at least 90 days of ownership before the sales contract is written. I think this is a stupid rule. Most of the homes that investors buy are houses that are too rough to be financed. They buy them for all cash and then make the improvements and repairs to bring the home up to market value. The FHA doesn't like to see a rapid price increase out of character with the rest of the market.

Many of these home flippers are professional companies that do a great job. There are probably some hacks out there as well, but for the most part, these companies provide a service to the community by rehabilitating otherwise dilapidated houses. My experience has been mostly positive when confronting these sellers with repairs after a home inspection. They tend to fix all the reasonable problems on an inspection report. Traditional sellers are often obstinate regarding repairs.

I think the FHA needs to re-visit this rule. The FHA is a loan program specifically designed to help entry level buyers and families get into homes and these "flipper" properties are often ideally suited for them.

Buyers looking at entry level homes may find a flipped property. Be sure to have your Real Estate professional check the closing date and write the offer after 90 days has passed. Your local agent should be aware of the better home flipping companies that operate and offer some guidance in this area.

P.S. There is a way to get an FHA loan approved on a less than 90 day old flipper. It requires a second appraisal and may require to seller to identify repairs that brought the house up in value. This can be tedious but a cooperative seller can make it happen. - Rod

Economic Indicators are Trending Up; "Op Window" is Closing

by Rod Sager, originally published on Realtor Rod Blog

Many market analysts are mildly bullish on the numbers coming out of the marketplace as we enter the final quarter of 2014. For me personally as a Realtor®, this was my strongest year ever. I enjoyed sales that were even better than the pre-crash heyday of the mid-2000s. Low interest rates and improving consumer confidence has made conditions for real estate ripe over the last two years. In 2011 through the middle of 2013 the first time home buyer segment was roaring. Prices were still a little depressed and rates were low so people that had been long priced out of the market saw a rare opportunity to own real estate. Economic recovery and confidence has led to a spill over into the middle and upper end markets.

Looking forward; the strong potential for the economy to swing into a more robust growth could lead to rising interest rates. If the rates get too high, they can have a negative effect on real estate sales and appreciation can slow. The "op window" for many buyers may be closing. Prices have swollen over the last two years by nearly 20%. If rates were to get closer to the 30 year average and settle in at 6%-6.5%, many entry level buyers will find themselves priced out. A strong economy is a good thing and even higher interest rates are worth having when strong job growth and higher incomes are part of the equation. Right now, buyers are in the open window of opportunity. They can lock in a low interest rate that can save them tens of thousands of dollars over the life of the loan before the improving economy drives prices and rates up.

Fear and uncertainty are what keep people from buying real estate. But no matter what, people need a place to live and buying right now for many people is just as affordable as renting. As the economic conditions improve the cost to own will rise faster than the cost of rent and that window will close as well. It is a good time to buy and a good time to sell.

This was published by Kiplinger this month:

By David Payne

The economy looks better than was previously thought: Look for about 3.5% growth at an annual rate in the third quarter, driven by motor vehicle sales,business equipment, exports and nonresidential construction. A likely upward revision of second-quarter growth to near 5.0% after a dismal first quarter (a -2.1% growth rate) is also likely. In the fourth quarter and into 2015, growth should settle down to a 3.0% rate. That would mean average GDP this year would be about 2.2% over the average for 2013.

Setting the stage for more sustained growth in coming months: After wringing out inflation, disposable income grew at a strong 4.0% annualized rate from December 2013 through July 2014. Consumer confidence is at its highest level since before the recession. Motor vehicle sales in July hit their highest level in over eight years. An index of manufacturing activity points to strongly expanding output. New orders for business equipment have climbed 13 percent at an annual rate since May, indicating strength in business investment spending. Plus, hiring is on the rise, layoffs are scarce (indicated by a very low rate of initial unemployment claims since May), and retail sales have rebounded.

And growth may accelerate more dramatically through 2015. Improving business confidence could push investment growth back up. Consumer spending and confidence remain below what would be considered normal levels by the standards of past economic expansions. As job growth returns and consumers feel more secure, more robust income and spending increases may well be triggered, pushing second-half growth over the expected 3% pace. While that happening in what remains of this year is an outside chance, it’s a good bet that in 2015 such a virtuous cycle will kick in.

There is a slight possibility that rising interest rates next year could have a mild depressive effect, knocking growth down from an above-average (better than a 3%) rate to a simply average (2.5%) pace. For now, however, we expect that the likely small increase of a quarter- or half-percentage point in rates won’t have much impact on GDP growth.

New Construction is Back...Bigtime

From Real Estate with Realtor® Rod,
By Rod Sager

From Stonebridge Homes, Ridgefield, WA

The last twelve months has seen a boom in the new home construction market here in Clark County. Builders are erecting beautiful new homes and buyers are snatching them up. The pre-crash trend of bigger homes on smaller lots continues during this post-crash recovery.

Builders are able to offset the fixed expenses of infrastructure when they can squeeze more homes into less land. This allows buyers to get a really nice home for a reasonable price. Families looking for the rancheria spread on the jumbo 1/4 acre lot will likely need to did deep into their pockets or continue working the 1970s and 80s resale market.

There are several builders that have setup shop across the county. New Traditions, AHO, Manor, Osprey, Olin, and Pyramid have been here before but we also are seeing new faces from Lennar and Stonebridge as well.

I helped a client get into a new home last month and he got a lot of house for a great price.2700 squares with nice upgraded trim and a decent sized lot at 6,000 squares for a great price of $313k. Prices are moving up though. That same floor plan is now fetching $325k in the same subdivision.

Getting in early can sometimes be a huge advantage price wise. Builders tend to increase prices as the phases of development are added in. The advantage to a phase one purchase is price, the disadvantage is the uncertainty of how the development will "feel" when built out.

New construction can sometimes soften the resale market and I think that the slower resale appreciation this year could be directly linked to the increased builder activity. That is a short term dilemma. The long term benefits associated with new construction are usually worth any short term loss. New development increases the value of real estate in the area. It aids in infrastructure improvements and provides needed local government revenue. It also aids in resale value long term.

Here in Southwest Washington, most builders list their new homes in the MLS. You can have your trusted real estate professional help you find the best value in a new home. Buyers that are trying to find a newer modern home should consider a new construction. It could be just what the doctor ordered :)

Understanding Contract Terms is Essential

It is imperative that both parties to any contract understand the terms and requirements to close. Most problems that arise in real estate transactions are misunderstandings between the parties. One person thought the seller would move out on this date or that time but the seller thought they had till such time, and so on.

Real estate agents are not attorneys! We fill in the blanks on standardized forms prepared by attorneys and approved by the state of Washington. This is designed to alleviate many problems that can happen during a real estate transaction. It is critical that all parties understand timing, dates and expectations. Many people make assumptions about how things are supposed to go. There are many standard timing issues that act as a default. For example, in Washington State, a buyer has the right of occupancy at 9pm on the day the county records the transaction. Unless specifically agreed in writing this is a contractual requirement. Many buyers think they can move in right after they sign documents or when the bank funds the loan. This can cause problems.

The moral of this tale is that both buyers and sellers need to be certain they understand the terms and conditions to the purchases and sale agreement. They should never feel afraid to ask their real estate agent questions about the details and procedures that are mandated and/or customary practices when closing a real estate transaction. Real estate agents should always be clear and concise about these terms and conditions and be certain that their client understands them. If language is a barrier then that agent needs to work harder to ensure that the clients understand.

When all parties understand the details and procedures to close, the transaction will go smoothly and everybody wins.

Two Ways to Invest in Property When You Don't Have a Ton of $$ to Start Out With

by Dan Jensen
Relocation Services Director - Equity Northwest Properties Group
Investing in Real Estate is a dream for some, a practical activity for others, and the path taken by so many people over years and years of our Country's history to amass significant financial holdings and net worth!

Okay, so RE is a sound path to building your financial empire, but what if you don't have a ton of dough to start with? Is it still possible to invest in real estate?

Short answer is 'Yes Indeed'.

Example/Tool Number One - Option

You see a house you like that's for sale or may be soon... someone you happened to be talking with who said they need to sell their house in the foreseeable future but aren't quite ready at this point. Maybe next year after the kids finish the school year. You express interest in the "possibility" of buying their house and ask if they might consider selling you an Option to Purchase the home - say $500 for the option right to buy the home at a price you both think is "fair".

The Option can be good for any length of time, but let's say this one is good for one year. As time moves along, the value of similar homes increases just a bit, 5% in this case, and the agreed upon price you and the owner set is now a few thousand dollars less than "Fair Mkt Value" for the home. You run an ad in Craigslist offering to sell your Option for $2500 and whoever buys your Option owns the lower price for the house that you negotiated. Whether they exercise the option and buy the house or not, you've made a little extra that allows you to do 2 or 3 similar options and roll up the totals over time to "bankroll" your other RE investment strategies that do require a bit a coin to complete.

Example/Tool Number Two - Lease Purchase

You do your research and find a couple of houses that haven't sold for several weeks. One of the owners just lowered the price on their house to try to attract a buyer, and the other one is running ads that have words like "Urgent", "Hurry", "Must Sell NOW", and the like, telling you they really need to get out from under their mortgage.

You make a couple of calls and ask if they will consider you taking over their payments IMMEDIATELY and put together a Lease Purchase for 3-6 years. The IMMEDIATE relief from their next mortgage payment is enough to persuade one of the owners to accept your Lease Purchase proposal, you write it up with a "Fair" price for their home stipulated, and run a different ad on CL this time...

You're looking for a buyer-tenant for the house. You've made the first mortgage payment ($1600 or so) to your home owner, which buys you a month to find a suitable and interested buyer/tenant for the home.  Your Buyer/Tenant wants to own a home, but they can't get a mortgage for whatever reason, so your Lease Purchase offer makes home ownership possible for them as they repair their credit, season their time at their job, or whatever the case may be.

In short, your are providing them with the opportunity to own a home, something they deeply want, and in doing so, they are not only fulfilling the terms of your Lease Purchase agreement with your seller, but your new Agreement with your Buyer/Tenant is sweetened a bit and will yield money down and a little monthly cash flow for you as well. Well constructed and negotiated, there's likely another bit of cash for you on the back end of the deal when your Buyer/Tenant buys the house!

Not a bad deal throughout!

The details are key here, and too many to try to summarize here, but this Tool allows you to create 1.) cash in hand on the front end, 2.) cash flow throughout the agreement term, and 3.) profit spread on the back end when your Buyer/Tenant executes the purchase of the home.

In both examples above, you have never "OWNED" either home, but you negotiated "CONTROL"  OF both homes that results in PROFIT FOR YOU!

As small pieces of profit begin to add up, AND WITH SMALL amounts invested by you, it opens the door to additional Investment Tools that benefit from having more of a financial capability. We'll cover a couple of those ADDITIONAL TOOLS in our next post here.

In the mean time, get ready for a great Independence Day week ahead of us and thanks for checking out our blog!

Real Estate Investment 101- It's Not as Complicated as You May Think!

by Dan Jensen
Relocation Services Director - Equity Northwest Properties Group

This is a follow up to the May 30th post on Real Estate Investment.

I thought it might be useful to debunk some of the myths out there in the market place about complexity issues, need for huge financial reserves, "but the market is saturated with investors" issues, etc. By providing a short and simple overview of some of the investing strategies and processes within Real Estate, I'm hoping to stir your thinking and perhaps open doors of possibility as well! (Check back over the coming 3 Fridays)

When someone says, "real estate investor", what comes to your mind? Are you thinking Daddy Big Bucks finding great deals on huge commercial office buildings (are you thinking 'The Donald' about now?), or are you thinking about that little 87 year old lady you met last month who methodically purchased small rentable houses over 40 years of her lifetime and has been very comfortable financially for the last 20+ years living on the rents her tenants pay her every month?

Or maybe your thinking went right to the tanned fellow in jeans and work shirt who just finished remodeling that "fixer" he bought a month ago and who is about to 'flip' that property for a nice profit as a reward for his work?

There's no question that each of the above represents real estate investment. These and many other scenarios begin to describe the variety of paths you could choose to follow if you ever decided you'd like to invest in real estate. This is an especially important time to be thinking about such things, as we are highly likely to see a return to higher inflation rates in the USA, and real estate has traditionally been one of the most powerful protections against general economy inflationary cycles.

But most who think about investing in real estate don't ever put their thoughts into action. Lack of money is one concern. Not knowing a good deal from a "great" one is another concern. Carving out the time to do any kind of research and investing is another barrier for many.

Let's break it down in the days ahead and see if we can move beyond these "barriers" to RE investing.

Here's 3 pieces I'll be detailing in the weeks ahead...

1.) You CAN invest in real estate with VERY LITTLE MONEY in your bank account

2.) You CAN accumulate a strong RE portfolio, increasing your net worth steadily, over time.

3.) You CAN "Buy Low & Sell Higher", turning fixer properties into nicely remodeled properties. It helps if you're handy, but even if you're not, you can still invest in this way and make it pay.

Next Friday, I'll describe 2 tools that allow you to invest in real estate with VERY LITTLE MONEY.

Check back then, and as always... give us a call if you have questions. We love to help!

Have a great Father's Day weekend!

Have You Considered Becoming a Real Estate "Investor"?

by Dan Jensen
Relocation Services Director - Equity Northwest Properties Group


Certain words will often produce specific responses in each of us. "Good", "Bad", "Tall", "Short"... We each have our own understanding of what those words are describing, and there are some pretty dramatic differences in each description.

It's the same with the word "Investor".  What do you think of when you read the question, "Have You Considered Becoming a Real Estate Investor"?

     * Having a million dollars cash sitting in a strong box at home and looking for great real estate deals

     * Having ZERO dollars, but still being able to make stunning RE deals with "no money down"

     * Gradually buying one rental house after another over a period of years until exceptionally wealthy

     * Buying a great home at a great price, living in it, and watching the value grow into a retirement fund

The fact is, all 4 of these can easily qualify as "Real Estate Investments", and a dozen more descriptions in addition to these.

Investing in real estate is much more about your objectives in purchasing a property, and not so much about which path you decide to take in order to reach your objectives. Any of the four paths listed above can move you steadily toward the investment objective of building wealth and/or income. (two very different results, by the way!!!)

Most homeowners in the USA bought their home with no real thought of that purchase being a part of their wealth/income investment strategy. You want a great home for you and your family, and "yes", you're counting on your home to increase in value over the years that you own it, but it isn't really about investing in that house at all.

Then careers grow more rewarding, and the idea of a second home, a "vacation" home might begin to percolate in your thinking, and sure enough, you find a great beach house within a sensible drive from the family home, and you buy that it. Once again, not really thinking real estate investing, just expanding the enjoyment you're experiencing through your dwelling arrangements.

However, the moment you look toward that little starter home two blocks over that you drive by on your way to work...

or...

You investigate that cute little 2 bedroom beach house just down the sand a couple of houses from your vacation home...

with the idea that you can buy it for a great price and either resell it for more soon, or rent it on-going for a nice additional stream of income,
you've clearly crossed over! to the "Investment" side of the house!

We've heard it a thousand times before... "More wealth has been created and/or maintained through Real Estate Investment that by any other method"! It's true, and we know it's true, but the financial numbers are significant, and we don't have all THAT MUCH extra to work with, so we dismiss the idea as a possibility for us, and never find out more.

There are some very powerful and AFFORDABLE ways to move safely and productively into real estate investing.and we'll be covering a few of those over the coming weeks. Check back for more.

Also, if you are intrigued a bit and would like to compress the information timeframe, give us a call. We would love to do some strategizing with you about ways to invest that you might find useful.

Thanks for checking in with us. We love to help!