The headline read “U.S. stocks plunged to their lowest levels in nearly three years Monday, and the Dow Jones industrial average suffered its worst point-loss in history…” That day in history was September 17th, 2001 (http://money.cnn.com/2001/09/17/markets/markets_newyork/). Imagine trying to market time a stock investment the week before? Whether your investing in stocks or real estate, planning is the process that prepares consumers for the possibility that timing works against them. If you look at the chart above you can see how home prices in southern California topped out in July of 2007. County wide, prices lost as much as HALF their values by April 2009 with the median home price finally recovering by 2017. Good planning is how you get through the tough times so that your not forced to sell if the market sells off. For example, imagine if you had purchased a house in June 2007 and then one of the following happened to you:
- Loss of a job/income
- Health emergency not covered by insurance
- Auto accident not covered by insurance
- Home repair not planned that drains savings
- Tax levy from the IRS or State taxing board
- Legal settlement not covered by insurance or savings
- Family emergency not covered by savings or insurance
I could go on with this list but each of these items can severely impact a homeowners ability to pay the mortgage. And consider this, NONE of these factors are market related! They are all issues that happen in LIFE. It goes to say “Plan for the worst, hope for the best.” Homeowners who carefully plan out the monthly payment including taxes and insurance are less likely to struggle during the tough times because they have “plans” in place to take care of such emergencies. For example, private disability insurance can protect a homeowner from the possibility of becoming unemployed from a disability. Drafting a will and living trust can make the process of losing a loved one a little more manageable to deal with a families daily affairs. An umbrella insurance policy can cover owner liability and certain potential lawsuits claims. Hiring a qualified CPA who is also designated as an enrolled agent(EA) can protect a homeowner from the potential conflict of filing a frivolous tax return. Home warranty programs can cover home repairs that are costly and unforeseen. The same goes with product warranties that are sold as “extended warranties” from resellers. Boosting an auto policy coverage can ensure that an unforeseen accident doesn’t leave a homeowner in massive debt from health care bills. This is just a short list of plans are designed to address unforeseen emergencies, not market pricing. Yes it’s still possible to buy a home at the top of the market. But, by working with a professional you can structure a plan to ensure that if the market turns, you still have a roof over your head, enough money to pay your mortgage and avoid being forced to sell your home. Need a plan? Contact me and I can help you get started!
I wanted to follow up my last discussion about mortgage assistance. All week I have been speaking with potential new home buyers who have shared down payment affordability concerns. The California Association of Realtors has recently shared this link which I want to pass on which can help potential home buyers with additional resources to find down payment assistance. CLICK HERE: http://bit.ly/2orSGPP
In 2017 home prices in California were priced right at market more than 2/3 of the time. WAIT? Is that what this data is telling us? Well . . . YES! If you look closely at the percentage of homes in 2017 that sold above asking price was 32.9%. That also means that 67.1% of the homes were price at or below market. One of the greatest challenges for home buyers is feeling comfortable long after the escrow closes and the movers have left that the price paid for that new home was a deal. Isn’t it? For most homeowners their home IS the largest asset they may ever own in their life so it strikes home, no pun intended! Although the data in this share today indicates California is getting to be a very warm market, at least for those that already did buy they can rest assure they at least paid a market price. And if they didn’t, there was a good chance that another buyer right around the corner probably would have. Unsure if now is a good time to buy or sell a house in California? I can help! Feel free to message me to learn about options that are available to you!
As always, check with your tax advisor about how any changes in the tax laws will impact you. Need a tax professional referral? I’ve got you covered! Two years ago I hired an excellent tax professional in LA that I have been very satisfied with and can refer to you. Just send me a message!
Recently I heard from some customers that rented a home in a very nice neighborhood that they want to begin the process of stepping up into home ownership. But there was one problem. When my customer’s spoke with their mortgage lender they were told they would need a seasoned down payment in order to qualify for the mortgage. Although it is not uncommon for lenders to want to see a home buyer with some skin in the game, there are programs today that can even help with a home down payment! So what is a seasoned down payment? Simply put, its the amount of money that is in your bank account that will be used to cover the down payment and has been in your account greater than 2-3 months. The reasoning behind the seasoning requirement for this article is not important because what my customer needed is to find the amount of money they don’t have saved with the amount the lender demands to qualify for the mortgage. The loan my customer wanted was the First-Time Home Buyer loan which only required to have 3.5% of the purchase price in their savings account as a down payment. Having only been able to save up 1% of the amount (because my customer is renting an expensive house) I told them about programs that are available that could help them obtain a grant towards the down payment. And best yet, would not have to pay the grant back! Not everyone will qualify for a grant, but just typing in “house down payment assistance” yielded no less than 2 million results! Although no one has the time to research (nor will they need to) I am familiar with at least 20 programs in Los Angeles that home buyers can research to determine if they qualify for a house down payment grant. It is important to note that no matter what direction you chose for down payment assistance, it is vital to communicate which program you chose with the realtor your working with so that when your offer to purchase is submitted that appropriate closing deadlines are planned so that you have enough time to receive the grant funds to fund your escrow. To become more familiar with down payment assistance this Freddie Mac resource written by Danny Gardner is a perfect first step to understand the options home buyers have available to them. Go here—–> http://bit.ly/2od7yBQ
Every once in a while I get blown away by a new product or service. As I write this I want to let readers know I am NOT an affiliate or getting paid by New Balance in any way to praise this product. In real estate I am on my feet a lot so I appreciate any footwear that makes it easier to get through the day. So I wanted to share my experience with these kicks from New Balance because they ARE crazy good! A good friend of mine has been loyal to New Balance for some time know as I always preferred Saucony. But I recently noticed something about my Saucony sneakers. Over time the sole “caves in” on me and doesn’t hold an even shape. My first pair of New Balance kicks were purchased last year and I was impressed how well they held up. I wasn’t even in the market for a pair of sneakers the day I bought these as I was in the store buying baseball cleats for my son when I noticed these gel-comfort sneakers. I can definitely say after two weeks they haven’t felt uncomfortable once. Even though I visit properties often I always power walk for at least 45 minutes a day. I love power walking for the added benefit of just reducing stress from the day and an opportunity to talk with friends and family. Even with that much time on my feet I don’t feel foot fatigue or any stress on my joints, heel or knees. I’ll update you in six months but for now these are great sneakers for all us road warriors.
The internet is full of strategies on how to invest in raw land and why its so important. Seldom do I see n author breakdown a simple strategy of how to exit land holdings to upgrade to an real estate income or growth opportunity. Here’s the conundrum: after paying off all your debts early in life you were finally able to save. A family member tells you about a great land investment opportunity so you need to act now! The land is cheap, taxes are minimal, and maintenance nearly nonexistent. Then a decade goes by. “What’s happening with your land” your family member asks. Nothing. It’s sitting there doing nothing. Sure maybe it appreciated . . . a little. So what now? You decide you would like sell or exchange the land to get a better return on your money. But how? It’s not worth much. HERE’S a solution most experienced investors have shared with me. Think of your land holding like a checkbook. But your not done there. Instead they say, go for the 3 Times Trade. Here’s what that means. Let’s say your land property has a value of $25,000. Next, you find a list of houses selling for $100,000. Three times the value of the land. Next, make offers to sellers till you find one that will accept your land as a down payment for the house. Next, bring your purchase and sale agreement to your banker, mortgage broker or private lender. Request a mortgage for $75,000 to close on the remaining deal. Why would the lender be willing to make this loan? Because the seller is already giving you credit for the land as a $25,000 down payment! The house is only 75% mortgaged leaving 25% of the house in the clear. You just turned the land into $25,000 of equity!
Another way of using this formula if you want a less expensive house si to go for the 2 Times Trade. In this example your land is worth $25,000. Next, you make a list of houses worth $50,000. Next, you find a seller that will accept your land as a down payment. Next, you bring the purchase and sale agreement to your lender and request a $25,000 mortgage to close on the house. The first $25,000 represents half down in this transaction which means you are turning the land into . . . $25,000 of equity! Why would the lender do this? Because you are only mortgaging the house by 50%. Most lenders will see this as a great deal because when you close you will have 50% equity in the house!
New possibilities now become available with the house that weren’t available with the land. Renting, house-flipping, Air B&B, home squatting just to name a few! These are two quick examples of how to exit out of land and step up to another asset class of real estate.
If you know of someone sitting on a piece of land and they aren’t sure what to do Share this article with them!
Although the concept of converting an unused garage into a livable dwelling is not a new idea, Gerry Brown signed the Wieckowski bill into law which actually promotes the idea http. See http://bit.ly/2dSK7rc. However if your conversion is not done right, not only can it be a disaster for your tenant, local laws can sting a homeowner financially. In Los Angeles there are local housing laws like the Los Angles Rent Stabilization Ordinance that must be followed in addition to state law. One garage conversion I remember went so badly for the owner that they ended up paying over $14,000 to the tenant. The situation was like this: A new owner bought a property sight unseen in the city of Sylmar California. The house was a 3 bedroom 2 bathroom with a detached garage in the back yard. There were tenants living in the front house and the detached garaged which was converted into a 1 bedroom apartment. The back tenant had a child who was getting very sick living in the back house because the ventilation was very poor in the bathroom. Add that the front house tenant was also the previous owner who had been foreclosed and had not yet surrendered possession of the property to the new owner. The previous owner was very upset about losing his house so he would let the 2 pit bull dogs living on the property roam the yard. Unfortunately for the back apartment tenant the dogs were unfriendly towards people so the dogs would intimidate and often try to hurt the back tenants. So now we have a back tenant who has a very sick child because of the ventilation problem and they couldn’t come and go as they pleased, essentially entrapped in the garage. Eventually I was able to negotiate with the owner to leave the front house (since he was living rent free from the resulting foreclosure) but the back tenant wouldn’t leave. As it turned out, she had hired an attorney who hired a professional licensed mold testing company who took samples throughout the garage and verified the existence of black mold spores. It wasn’t short after that the attorney wrote a letter to the owner stating that, under LARSO rules the owner MUST pay the tenant as much as $18,000 to relocate the family and even threatened with an additional $36,000 of health related damages suffered by the tenants child! Although the owners attorneys responded and disagreed with some of the claims, a settlement was quickly reached of over $14,000 in favor of the garage tenant. Although the previous owner had probably never foreseen the potential disaster that ensued, new home owners must be aware of how local laws can impact a planned garage conversion. Had the previous owner used sound building and construction practices, the ventilation issue would most likely not have been an issue and would not only have kept the family safe, but the new owner from having to pay a large settlement to move the tenants out.
Who will forget the week of messages we just experienced! First the (phony) message that set off innocent Hawaiians about ballistic missiles causing panic when instructed to to seek immediate shelter! Then football watchers at this Sunday’s Minnesota Viking game wearing Apple Watches being sent messages by their Apple Watch that they might have a heart issue which was actually caused by the excitement (and resulting increase of blood pressure) from the miracle play that resulted in the Vikings victory over the opposing Saints. Messages people!!! These events were one more reminder to me that STICKING TO THE PLAN is the only thing we can ever depend on. This summer I was managing a single family remodeling project that was in its early stages. An agent and a painter came over to look over the house and told me that I would be lucky to get around $525,000 when the house was finished. I disagreed. I told them that the house would be undergoing several floor plan changes that would re-create how the house could be used, thus giving it greater value. Eyes would roll as you can imagine. This didn’t deter me. I was the one with plans in hand and after s
eeing how several similar remodeling projects had performed in the marketplace my plan was grounded reasonable expectations. The target future value I held onto was $575k. At times the project didn’t go well. Work was slow because of the crushing summer heat and the workers just weren’t as productive as when temperatures were cooler. Labor costs began to exceed budget. It severely tried my patience. But by the time the ‘heavy lifting’ was finished, opinions changed. Agents and vendors alike remarked that $575k would be a good asking price. Then, a nice break from the heat helped further advance progress so that hardwood flooring and kitchen cabinets could be installed. The tide had turned. In the end we finished over budget, with the house taking three months to sell and earning a $595k sales price at closing. Sometimes you’ll work a project and you’ll field options that will differ from your plan. If you’ve done your homework, those options are unqualified and should be disregarded as nothing more than a mixed message. Mixed messages can cause chaos and confusion because they often lack clarity and grounding in facts! My job was to maximize the value of the house so that when I finished the house it would have a value of at least $575k, potentially more. When we sold the house above my target value it was one more reminder that STICKING TO THE PLAN is the only thing you can ever depend on.
PS. I thought you would appreciate the before and after pictures this house project!
The holiday season is such a festive time of year. December is full of events “all-things-social.” Mix in holiday shopping, traveling, preparing to travel, packing to travel…life gets busy this time of year! I recently called a good friend in Phoenix who told me three quarters of her real estate office is out of the office. I asked “is the office having a holiday party?” Her response was amusing. “No, they are out. Everyone’s coming back after the 1st.” As we continued to talk I mentioned to her that real estate can slow down this time of year. Without missing a beat she responded, “We slow down, but some of us have to get things done. I’m having one of my best months right now with customers who need to close before year end.” She made a really good point. For some sellers, renters, exchangers the holiday season doesn’t give their obligations a break till after the New Year. For example, I’m still getting calls from customers who really need a house rental by the 1st of January. Add that two local agents contacted me recently with two new listings in which the sellers need to close quickly. Then I was contacted by two loan officers who are featuring special loan deals this month including no money down and no document programs for new home buyers. So much for taking a break at the in December! The amazing thing that I have learned over the years about real estate at the holidays is this: buyers and renters have so little competition they practically control the deal! If you think about it, where are most people you may know today? Online shopping? Traveling? Running down to the grocery store to pick up holiday food supplies and beverages for the big meal? Getting ready for tonights party/concert/program? One example I can share recently was on a new home lease listing in Inglewood. After speaking with the owner he explained to me, that even with the house only on the market for 3 days he would be willing to drop the asking rent $100/mos. just to get a renter in by year end. 3 days on market! It takes AT LEAST one weekend and a full week for the public to find a new listing, let alone set up an appointment for a showing! This rarely happens in the spring, summer or early fall in my market. Another example is of a seller that I made an offer on a single family house that needed major remodeling work. A real fixer upper as you can imagine it. Needs everything. I asked the seller for several concessions including a very delayed closing to allow the bank (which FOR SURE will be working slowly at the holidays) to fund the deal into early February if needed. The seller’s response was very generous and said “this sounds fine to me.” WHAT OTHER TIME OF YEAR WOULD THIS HAPPEN?!?!? Ahhh the holidays. Yes, even with the shopping, the parties, the meals, those oh-so-social events that make the spirit of the season so rich and festive, there is still work to be done and deals to be had. Except this time of year, it can really feel like a one person audience. I don’t know about you but I like the odds of getting deals closed at the holidays more than any other time of the year. Happy Holidays everyone and a joyous New Year!
Need help getting your deal done? Contact me at firstname.lastname@example.org!
Paul Krause is a licensed California Realtor #01835890 and General Contractor #1029575 and is based out of Los Angeles, California.