It’s Drafty, It’s Old, but It’s True Love — and a Chance to Win $100

• It’s Drafty, It’s Old, but It’s True Love — and a Chance to Win $100

  Follow Curbly’s Bruno Bornsztein as he insulates, caulks, and adds an HVAC to his ‘new’ 100-year-old home. Leave a comment to win $100. Read

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Copyright 2012 NATIONAL ASSOCIATION OF REALTORS®

Real Estate Roller Coaster Ride

Dear Readers, Friends, Neighbors, and Family, Welcome to the Real Estate Roller Coaster Ride. Prices historically go up over the long term, but it is normal for there to be peaks and valleys on the way. The most recent peak was so high that many investors and home purchasers bought and refinanced homes for as much as 30-40% more than they are currently worth. If they keep their homes for decades and can qualify to refinance at the current historically low interest rates, they will come out ahead in the wash. If on the other hand they have experienced financial hardships in recent years they are poised to lose a significant amount on their investment. For those who have lost their homes in this way, the devastation continues for several more years due to the impact short sales and foreclosures have on one's future ability to buy and even to rent. That being said, this is the eighth month since I started using the term, "soggy bottom" to describe where we are in the current market. The transition between Buyer's Market and Seller's Market is slowly occurring as if in slow motion. The increase will be hardly noticeable to those of us who thought homes should sell in a week or two with multiple offers for way over asking price. The traditional market nationwide has always been that a home takes about 6 months to sell. Longer than that and we are in a Buyer's Market; less than that and we are in a Seller's Market. I just had a listing close which I listed in the first week of December. It closed in 6 months and 2 weeks, but it was also one of those very trying sales about which you have hopefully only read, not experienced. That would indicate that we are still in a Buyer's Market, except that short sales take longer than even foreclosures to close often. And in this case the property was listed with several agents, including myself before over the previous fews years. The good news is that short sales tend to sell for more than foreclosures. Which brings me to the point that if the longest types of sales are taking just a little longer than the turning point then what is happening to regular sales? The ones I am watching in our area are selling in less than the 6 month marker which says we are already in a Seller's Market. The adjustment in the market is only really visible when a house for sale is realistically priced remembering that our values are back to about where they were over a decade ago and staged well to compete and invite homeowners to want to beat out the competition who want the same house. The perks for the sellers are not having to wait in limbo so long and closing costs for transfer taxes are much lower than they were at peak, saving homeowners money on both the selling and buying sides. For homes that need a lot of work or are not looking their best, prices are still under market due to the obvious work required to bring them up to par. All in all, the mood is optimistic for people wanting to buy and sell homes and a bit of normalcy is returning to the market. For those who are just now coming to terms with their banks on mortgages that are in arrears, the national banks are making some headway in creating systems to get decisions made and process contracts in a more transparent manner. It will be a long while for our area to process these lost homes, and home values will hopefully not be skyrocketing anytime soon, all good news for our daughters and sons who would like to join the ranks of homeowners in living the American Dream where their hard work can buy them a piece of their own property in America. Many thanks to my friends and their families who have served and lost loved ones defending our way of life. Best wishes for a safe and happy Memorial Day, Linda

Markets Stabilize

Bloomberg reports today: "Home Prices Rise in Half of U.S. Cities as Markets Stabilize". For several years now I have been watching the indicators change over from Buyers Market to Sellers Market. Slowly the signs are stacking up and 8 months ago I heard a national speaker at the annual conference for the Maryland Association of REALTORS(R) (MAR) tell agents that sometime this year we would see rising prices again, albeit a slow 1% per year rise. The economic guru Mr. Anirban Basu who has done presentations for many groups in our area with charts showing small wave like improvement over the next few years, barring unforseen events. Steve Harney also predicted last Fall that prices would fall another 6% nationally before that happened. He spoke again 2 months later at the national conference for the Council of Residential Specialists(CRS)in November and said much the same thing. I am seeing houses in our area selling in less than 6 months which is the standard measure of "normal" and if priced and staged right, entertaining multiple offers. Below is an excerpt from an email I received today from Michael Fagan, PHH Home Loans: "The National Association of Realtors (NAR) said that of the 146 Metro cities surveyed, home prices rose in 74 of them in Q1 2012. This is up from 29 cities that saw an increase in home prices in Q4 2011. In addition, the NAR also said that inventories for existing homes fell 22% since this time last year and are down 41% since the peak in mid-2007. While the housing market has a long way to go, this report was a nice step in the right direction. There was also news from the National Federation of Independent Business, which said that its small business optimism index gained 2% in April as the survey revealed that companies have increased plans for hiring and investing in the future. While companies added new employees at a slower pace in April than in March, the index rose to 94.5 — the highest level since February of 2011. Overall, though, the report showed that our economy is improving but is still fragile. The state of our economy is part of the reason for the improvement in Bonds (and home loan rates, which are tied to Mortgage Bonds) of late. Another big reason that Bonds and home loan rates have been improving is the fresh round of uncertainty out of Europe. France elected a new president, and this change of the guard represents the ninth EuroZone leader swap since the financial crisis began. Greece is also back in the news and their citizens are not taking to the austerity measures either. The New Democracy government, a pro-bailout party, is having trouble gathering the support to rule the government. This has sparked some safe haven trading into our Bonds, as investors see our Bonds as a safe place for their money. The bottom line is that now continues to be a great time to purchase or refinance a home, as home loan rates remain near historic lows."

The Truth About Appraisals

"The Truth About Appraisals; Knowing the Guidelines Solves the Mystery The appraisal process often baffles consumers. They may feel that their home is worth a higher dollar amount, and so the appraised value doesn't always make sense to them. It is important to know that the appraiser is completely independent from lenders, buyers, sellers, and real estate agents, and that the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, the mortgage lenders must also disclose the purpose of the appraisal, as each transaction carries its own set of rules. In essence, these important guidelines help appraisers put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value. For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal. Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren't uncovered until the project has already begun, such as plumbing or wiring that may need updating. Ultimately, the value of the upgrades must be supported by comparable examples within the same marketplace. These comparisons must be drawn from current market activity within the last six months. This is a safeguard to prevent appraisers from attaching too high a value to the home in question, and opening up the appraisal for review. This guideline further states that appraisers can only base their opinion on the value of home sales that have actually closed. " Thanks to Michael Davidson for the use of the content above. Senior Loan Officer, Embrace Home Loans, Rockville, Maryland

Housing News 11 Trends from 2011 The National Association of Realtors® surveys homebuyers and sellers each year to uncover housing trends and monitor changes taking place in the industry. This year's report highlights a number of trends that haven't been seen in years. Here are just 11 highlights from the 2011 report. 1. In 2011, 37% of homebuyers were first-time buyers – which was down from 50% in 2010. 2. Last year, 88% of homebuyers used the Internet to search for a home. That number was down slightly from a high of 90% in 2009. 3. The typical homebuyer searched for 12 weeks and viewed 12 homes. 4. The number of buyers who purchased their home through a real estate agent or broker climbed to 89% – a share that has steadily increased from 69% in 2001. 5. Nearly 1 out of 4 buyers said the application and approval process was "somewhat more difficult" than expected...and 16% reported it was "much more difficult" than expected. 6. About half of home sellers traded up to a larger and more expensive home...and 60% traded up to a new home. 7. The top 3 factors influencing neighborhood choice were: the quality of the neighborhood, the convenience to job, and the overall affordability of homes. 8. The typical seller lived in their home for 9 years. That number has increased from 6 years in 2007. 9. Although 61% of sellers said they reduced their asking price at least once, the average home sold for 95% of the listing price. 10. Only 10% of sellers sold their homes without the assistance of a real estate agent. Of those people, 40% knew the buyer prior to the sale. 11. The typical "for sale by owner" home sold for $150,000 compared to $215,000 for the average agent-assisted home sale. If I can answer any questions for you about the housing market in our area, call or email me anytime. All Contents ©2012 The National Association of Realtors®.

The Official Newsletter of The Real Estate GuysTM Radio Show Education for Effective ActionTM Volume 12 Number 2 Home Facebook Podcasts Events Feedback A Notable Quote "Champions do not become champions when they win the event, but in the hours, weeks, months, years they spend preparing for it." - T. Alan Armstrong Feature Article Is NOW the Time for Single Family Homes? - When billionaires talk, people listen When we interviewed Donald Trump a couple of weeks ago, he told us that NOW is a great time to get into real estate - and he specifically pointed to houses. Fellow billionaire, Warren Buffett, appeared on CNBC a couple of months ago and essentially said the same thing. In fact, he said if there was an efficient way to do it, he'd like to buy 200,000 single family homes! You may or may not agree with them at first blush, but when two billionaires (neither of whom are trying to sell you houses) both say the same thing, it's probably worth taking a closer look, don't you think? Why are billionaires Buffett and Trump bullish on real estate right now? Prices are low relative to replacement cost. Rising commodity costs (oil, lumber, steel, concrete, copper, etc.) make it more expensive to build new homes. And even though land and labor are soft in many areas, it still costs more to build a new house than what existing homes are selling for. Until that changes, there won't be too much building (not to mention the tight construction funding). Eventually, a growing population (the U.S. is projected to reach 400 million in the next 20 years), should increase demand to where new housing will be a necessity. When that happens, the new houses will pull up the value of existing houses. Or more accurately, competition for existing houses will push prices up until it makes sense to build new ones. Either way, it's a wave a "value investor" like Warren Buffett recognizes- and would like to ride. Rents are high relative to purchase prices. At the end of the day, rental real estate is an income investment. When you can pay less for more income, that's a good thing. And with more people entering the renter population, increasing demand is propping up rents in many markets. Robert Kiyosaki's Rich Dad(TM) real estate advisor Ken McElroy tells us that every 1% decrease in home ownership is another million people who need to rent. And home ownership is several points down from its peak of nearly 70% just a few years ago! That's a BIG demographic shift. Again, the law of supply and demand says that without new houses coming to market, and more people competing for available housing, rents (and prices) will eventually rise. But even if they don't, RIGHT NOW the rent to price ratio is VERY favorable for income property investors. Great! That means we don't have to wait for the numbers to make sense. In many markets, they make sense now. The foreclosure inventory remains high. Why does this matter? First, the people living in those houses haven't yet joined the renter population. As they do, there will be more demand for rentals. And as those properties work their way into the market, they'll keep prices down. That's good if you want to acquire properties at good prices (value investing). If you're a buyer of investment real estate, how long do you want the sale to last? For us, we hope the sale lasts awhile, so we can stock up! Interest rates are at record lows. The biggest expense a real estate investor has is the interest on the mortgages being used to control the property. Low interest rates and solid rents mean better cash flows. Right now, the cash flow on many properties (the capitalization or "cap" rate) is higher than the cost of the mortgage (the interest rate). If you can borrow money at 5% and invest it and earn 8%, how much 5% money do you want to borrow? How about ALL of it! And last but CERTAINLY not least.... Inflation benefits real estate investors. Donald Trump told us that "real estate and inflation get along very well". Great! What does that mean? When the Fed "eases" more money into the system, it causes interest rates to drop (the topic of an epic blog last summer called The Great Debt Ceiling Debate). In fact, lower interest rates are a major reason the Fed "eases". But easing also means that the dollar falls - that is, it takes more dollars to buy the same stuff (which is why gas, food and almost everything costs more in dollars). Hey! Don't tune out now! This is where it gets interesting. Trust us, a little understanding of real estate macroeconomics can go a long way. There's a reason Trump likes real estate when there's inflation. Real estate is one of the items that eventually goes up in dollars because of inflation. But that's not the reason to buy property. Because whether the property goes up or down in price over time, as long as it cash flows, you win. Say that again: As long as it cash flows, you win. Let's take a look... For example, if you put $20,000 down on a $100,000 property and it throws off positive cash flow of $200 a month, you're getting over 10% return on our your $20,000, plus tax breaks! That's pretty good. But what if (gasp!) Buffett and Trump are wrong, and the house goes DOWN? Let's say that after 30 years, you wake up and discover the property is only worth $50,000. A 50% decline over 30 years! Ouch. But did you really lose? Grab a cup of coffee and let's do some math! C'mon, it'll be fun. First, let's say you paid cash. Not that you'd want to (for reasons to be described), but you may have to. Not everyone is running around with a pristine credit score. So you pay $100,000 today. Without a mortgage, after expenses, you pocket $700 a month...for 360 months! That's $700 x 360 or $252,000. Now the property is worth only $50,000 and it still generates cash flow. So you get ALL your money off the table, still have a property that's paid for, and it's paying you each month. How are you doing? But, you say, if the price drops, wouldn't the rent drop too? Take a look around. We just watched properties lose half their value in many markets. Did the rents go down by half? Maybe in certain isolated markets, but that's certainly not been the norm. And if home prices are dropping precipitously, are builders adding new supply? Probably not. So unless the population shrinks as much or more, then demand should prop up rents. However, for sake of argument, let's say that rent dropped over time so that on average, your take home income on your free and clear property was reduced from $700 to $350. What's $350 x 360? Survey says... $126,000. Have you lost yet? Isn't this fun? But let's go back to our 20% down scenario.... So you put in $20,000 (down payment) on a $100,000 property and earned 10% plus a year for 30 years ($200 a month = $2400 a year income on your $20,000 down payment). Less cash flow than when you paid $100,000 cash. But we can think of about 80,000 reasons why getting a loan is a good idea. And more than 10% cash on cash is pretty strong. Good luck getting that in a CD. Plus, at the end of 30 years, the tenant has completely paid off your $80,000 loan and you now own the house free and clear...PLUS, it's still supplying you with monthly cash! There's no bank account or mutual fund that can match that deal. We know. We asked. They laughed so hard, they....well, let's just say they laughed real hard. Now if Trump and Buffet are right, and today you're buying houses below the future value, in 30 years the property might be worth $200,000 or more. Nice, stable, steady long term inflation of 2-3% - just like Bennie and the Fed target. As in, the Fed is COMMITTED to inflation. But what about all this talk about hyper-inflation? There are some doom-and-gloomers out there heralding hyper-inflation. Hyper-inflation means you wake up in the morning and a pound of coffee is $5, but when you go back that afternoon, it's $7 and by the following morning it's $10. In other words, the dollar is in free fall and it takes more and more dollars to buy the same goods and services. It's happened many times in other countries in just the last 50 years. It's ugly, especially for those who don't know how to see it coming, how to prepare and what to do when it happens. Now we understand the argument for hyper-inflation and it's a good one. So let's take a look at why real estate right now makes so much sense. Real estate is arguably the best vehicle to hedge against hyper-inflation, and as we've already discovered, even if we have long term deflation and the property falls in price over time, as long as it cash flows, you're fine. So what happens to our real estate if we get hit with hyper-inflation? First, everything real costs more in dollars. The more dollars created (easing), the less valuable they are. That's why gold goes from $800 an ounce to $1800. It's why oil is up (and you thought it was Iran). And in our previous scenario, it's why it takes more and more dollars to buy the same pound of coffee. So if you know that today's $5 pound of coffee will be worth $10 tomorrow, do you want $5 in your pocket or a pound of coffee in your cupboard? Duh. You want the coffee in your cupboard. It's holding its value, while the dollar crashes. Now if you could borrow $5 from a friend today and add it to the $5 in your pocket, you could buy 2 pounds of coffee today. Then tomorrow, you could sell 1 pound for $10 and pay back your friend his $5 and you'd have a pound of coffee in your cupboard AND $5 in your pocket. Pretty good. Meanwhile, your friend has his $5 back, which will now only buy a half pound of coffee. Ouch. So do you want to be the borrower (you) or the lender (your friend)? If you didn't track with all that, then go back and read it again and again until you do. Even better, go find a friend and discuss it until you both get it. It's an important survival skill if the hyper-inflationists are right. So what does this have to do with your real estate investing? A lot! And remember, when most financial pundits talk about real estate, they're talking about the home you live in. We're talking about owning homes that OTHER people live in - and pay you rent. Now, in the aforementioned "coffee" scenario, how much money would you like to borrow EARLY in the inflation cycle so you could go stock up on coffee? Say ALL of it because that's the answer. Why? Because every dollar you borrow today becomes easier to pay back tomorrow as inflation roars. Debt is how you short a falling dollar. Think of it this way: If hyper-inflation hits, you can either short the dollar or lose your shorts. Of course, the dangerous part of using debt to short the dollar is making the payments until you pay the loan back. But that's why we have tenants - and last time we looked, having a roof over one's head at night is a top priority (even over coffee...at least for most people). And because housing is an essential human need, while many aspects of the economy will suffer, residential income property will probably be more stable. And owners of properly structured residential real estate will be in a position to do quite well as we'll see next. So let's take a quick look (we know you're getting antsy) at our example property in a hyper-inflation scenario, then class is dismissed. Let's say you put $20,000 down on a $100,000 property today and it rents for $1000 a month. And just like before, you have an $80,000 loan with a $500 a month payment. At the current rent, after expenses you clear $200 a month. So far so good. Now hyper-inflation shows up and before too long, your $200 a month positive cash flow will only buy 10 cups of coffee each month. It sounds crazy, but go look at the what happened to prices in other countries (Mexico, Argentina, Yugoslavia to name a few) that have experienced hyper-inflation in recent history. So now your $1000 a month in rent is now only worth 50 cups of coffee. But guess what? Your $500 a month mortgage payment is fixed. So even though your $1000 a month rent isn't worth much, it's plenty to make the mortgage payment. So you're okay. Whew! Now let's say that at the beginning you were paying attention (what a concept!) and saw the possibility of hyper-inflation. So when you originally purchased the property, you put $20,000 down, but took another $5000 and bought 100 pounds of coffee at $5 a pound. Just in case. Now when hyper-inflation shows up, coffee goes to $20 a cup and $1000 a pound. Of course, if coffee is $1000 a pound, what's your house worth? Probably millions. But it doesn't matter because you aren't selling. Why would you? For dollars that are growing more worthless every day? Nah. But what about your mortgage? Could you sell 80 pounds of coffee stash for $1000 per pound and use the $80,000 to completely pay off the mortgage? Yes, you could. And although the argument could be made that you wouldn't want to pay off a loan, in a chaotic economy it might makes sense to remove all claims to the property. Of course, you don't need to use coffee to hedge. You could use gold, silver, copper or some other commodity, ideally something in high demand, but you get the idea. The point is that the last thing you want to be in is dollars, which is why Robert Kiyosaki tells us "savers are losers". The converse could also be said to be true, which is that "debtors are winners" IF you have the right debt (secured by an asset that cash flows at less than the cost of the debt). We're not saying real estate is "no risk". There's no such thing. But there's also risk in doing nothing. We've been at this for awhile, and we get to talk with lots of really smart people, and from our vantage point, there's nothing we see on the horizon that looks better than properly structured residential income property for either deflation, inflation or hyper-inflation. But if you can think of something, let us know and we'll check it out! Knowledge is power, but only when acted upon. The hardest part of real estate is finding the right markets, the right team and the right deals - especially if you don't happen to live in an area where the numbers make sense. That's why we do our educational market field trips. We'll spend two and a half days showing you a market, introducing you to prospective team members (property managers, real estate brokers, lenders, etc.), talking strategy and risk mitigation. And no one will push you to buy anything. We're all there to learn together. Here's where we're going next this quarter: Dallas, Texas - May 4-6 Business friendly, oil rich, strategically located (distribution) and affordable, Dallas is one of the strongest markets in the country. Come see it first hand and decide for yourself! Click here to learn more. Atlanta, Georgia - June 1-3 Boasting the nation's busiest airport, Atlanta is a major distribution hub and headquarters for UPS, along with several other Fortune 500 companies. Atlanta has a strong, diverse economy and a big renter population, cash flows are strong in Atlanta. Click here to learn more. *** The Real Estate GuysTM radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed. • Connect with The Real Estate GuysTM on Facebook • Subscribe to the FREE podcast on iTunes • Send us your comments and question on our Feedback page. Upcoming Events Featured Resources • Dallas Market Field Trip - May 4-6, 2012 • Atlanta Market Field Trip - June 1-3, 2012 • Secrets of Successful Syndication - June 22, 2012 • Analyzing Markets and Properties: The Due Diligence Process- July 20-21, 2012 More... • Free Special Report: Fortunate Choice: From High-Tech to the Heart of Texas by Tom Wilson • Hot Read: Tax-Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes by Tom Wheelwright • More Free Special Reports Visit The Real Estate GuysTM Recommended Reading bookstore Encore Episode Practicing Safe Syndication with Special Guest Attorney Mauricio Rauld "I have listened to all of your podcasts multiple times. I have been investing in real estate for almost 10 years and I still learn new things from your show. Thank you and keep up the great work." - Nicholas K., 4/17/12 Not yet a podcast subscriber? Sign up today! It's free! About The Real Estate GuysTM Radio Show Since 1997, The Real Estate GuysTM have been broadcasting on conventional radio. In late 2008, the podcast version of the show was introduced and has become one of the most downloaded real estate podcasts on iTunes. Hosted by Robert Helms and Russell Gray, The Real Estate GuysTM radio show features lively discussion about topics that matter most to real estate investors. Notable guests include billionaires Donald Trump and Steve Forbes, best-selling author Robert Kiyosaki, former presidential candidate Herman Cain and many industry leaders and subject matter experts. The Real Estate GuysTM mission is to provide our audience with ideas, information, perspectives and resources useful to building wealth through real estate investing. For more information, visit www.realestateguysradio.com Get more than one copy of this newsletter? Sorry about that! Click here before you unsubscribe. Thanks for being a subscriber! The Real Estate GuysTM Radio Show and Newsletter are intended for educational and entertainment purposes only and should not be construed as tax, legal or investing advice for any specific person or circumstance. Always consult with properly qualified and retained professional advisors when making financial decisions. The Real Estate GuysTM Radio Show is supported in part by our sponsors. Some of the links and resources referred to in this newsletter may lead to products or services for which The Real Estate GuysTM Radio Show is compensated. © 2012 TREG Holdings LLC. All Rights Reserved. Permission is granted to freely share this newsletter in its entirety. Partial duplication or distribution is prohibited.