Lately, many of my colleagues and friends have been asking me whether I think buying Real Estate is still a good investment. While it may seem like renting a property that is easier to get out of, costs less to maintain and is more easily negotiable to get into is a better choice than dealing with selling agents, competitive cash offers from investors and escrows and taxes; I firmly believe that it is NOT. You may think, “Sure, of course SHE doesn’t want us to rent, she wants us to buy – that’s how she makes money” so keep reading and decide for yourself.
First we need to define what is considered a “good” investment. There used to be a time when people would see huge returns on their investments, be they in stock, bonds or real estate. In a recession however, all kinds of earnings and returns are diminished. This leaves investors to re-define their idea of a “good” investment. Sometimes, they may consider an investment that does not lose value as a “good” investment, other times nothing less than doubled value would be considered “good.” Generally speaking, according to most economic theorists and financial advisors, any investment that is yielding a 5-8% annual return is considered a “good” return. This leads us to a discussion of ROI.
Often you will find people talking about ROI. Historically, ROI (Return On Investment) has been a common method for individuals and companies to measure how “good” of an investment they have made, based on the rate of return that they have enjoyed. When trying to determine whether a particular real estate purchase is a good one – one would need to consider a few things. Real estate’s value depends mainly on its location. (I know you’re heard it “location, location, location”) Often, communities that are built to support big educational institutions or employers (think big name colleges and the neighborhoods close to them, or big factories and suburbs created to house the families of the workers) tend to enjoy more stability in terms of price and rate of return than others, even in times of depression and recession. By looking at the location of the real estate, you will have more information about whether or not it is a good investment. Surveying historical values over time in the area will allow you to see the retention of prices in the area.
Ultimately, as an investor you will need to gather information not only about the property you are considering purchasing, but also the surrounding neighborhood, historical values and proximity of institutions that can contribute to the stability in price. Overall, investing in a home, even at this time in our economy can yield the same (if not better) return as investing in stocks or other types of investments. The key difference would be that you can live in, build a home in, create a family in and achieve your dreams in a piece of real estate whereas a stock certificate can not provide these intrinsically satisfying things for you.
Some banks show an uptick, but often, the loans are harder to get.
Seeking money for a pressing need or unexpected expense? A TV commercial airing these days from U.S. Bank suggests a solution: A home equity line of credit.
The spot may be reminiscent of the housing bubble for some, but it also represents a sign of the recovery.
“A small fraction of banks are actually reporting they’re seeing stronger demands for home equity lines of credit over the last 3 months,’’ says Keith Leggett, vice president and senior economist at the American Bankers Association.
“The lenders are still going to be cautious, but the fact that you are seeing lenders actually tip toe back into that water is an indication that the housing market has probably stabilized and is actually beginning to recover,” he says. “Lenders would not be going into this market if they viewed (that) housing prices were scheduled to drop further.”
ComericA bank says it’s seen an increase in home equity lines of credit in Orange County. The bank had a 55 percent rise in applications for them as of mid-October this year compared with the full year 2011, and a 36 percent increase in money taken out by borrowers, bank spokeswoman Nancy Tovar Huxen said. There was a 74 percent jump in home equity credit applications in September year to date over the same period ending September 2011, and a 68 percent increase in money taken out.
BOOM VS. BUST
During the housing bubble, many homeowners used their home like ATMs. Income documentation and a healthy amount of collateral often were not deemed necessary. Home prices were soaring.
But since the crash, the rules for such credit, as with other types of loans, have tightened significantly.
“They’re being very careful about who they’re giving that loan to,’’ says Houtan Hormozian of the Orange County Association of Mortgage Professionals. “Banks definitely don’t give them out like they used to.’’
Now homeowners typically need a 720 FICO score, at least 20 percent equity in the home, and documentation of income and mortgage payment stability, Mortgage Brokers say. And home equity lines of credit don’t come cheap: Average fixed Interest Rates were 6.68 percent as of Oct. 5, down from 7.06 percent a year ago, according to HSH Associates, which collects data on the mortgage market.
So who qualifies for a HELOC nowadays?
U.S. Bank officials say though the bank’s commercial is airing now, their careful lending practices haven’t significantly changed, and that the bank continued to give out home equity lines of credit even after the housing crash.
“It’s really for the crème de la crème,’’ says Dave Haub, president of CMC Lending in Garden Grove, of typical guidelines for the loans. “There’s not a lot of people who have the equity. It’s almost for the people who really don’t need it.”
PAYING IT BACK
But borrowers who took out home equity lines of credit in the past could face trouble ahead. In a couple of years, more than half of these loans will begin amortizing.
Communication is a word that we often hear but rarely think about. We know it is important and we know we are supposed to do it on a daily basis (like brushing our teeth) but very few of us actually dedicated time and energy to the act of it. Communication becomes particularly important in business relationships, especially your relationship with your Real Estate agent. You would think a person that sells and buys real estate for individuals would know how to communicate effectively, but as of late, I am coming across many situations that show me that just is not true.
Recently, I had a showing in a popular community with hundreds of homes in the complex. At the gate of the community were over 50 lockboxes holding the keys to the various units that have been listed for sale. I was showing only 5 units that day, and had made contact with over 10 agents in the days preceding the showing day to set up appointments and let the agents know that I would be showing their listings. Of the over 10 phone calls and emails I made and sent, only 5 got back to me in time and 3 still have not contacted me (three weeks later). This was my first tip-off that perhaps these agents are not experts at communication.
Next, on showing day I arrived at the gate where the lockboxes were and proceeded to get the keys for the units I wanted to show. To my utter and absolutely disbelief, I found myself facing lockboxes with no indication of who the agent was or what the unit number was. There were some agents who had taped their business card to the lockbox or used a permanent marker (oddly enough) to write the unit number on the box – but the overwhelming majority were blank. I could not believe this. How does one think he/she can sell a listing if the showing agents and prospective buyers cannot gain access to the unit?! I made a few phone calls, only one of which was answered and finally opened the lockboxes and got the keys. Some of the boxes had multiple units’ keys in there with no labels, again! This pattern was beginning to alarm me and my clients finally arrived so I brushed it off and we began our tour.
Now, I had made appointments and given courtesy notice that morning to all of the agents of the units I would be showing. Two of the units were vacant so that was no problem, but the last three still had people living in them. One family I felt particularly bad for, was trying to put their baby to sleep when I rang the doorbell and ended up with a crying infant because their agent had forgotten to tell them that their home would be shown today (by appointment!). Another lady had just gotten out of the shower and was more than shocked and surprised that anyone had made an appointment to see her home.
I write this today to let all you prospective sellers and buyers know to ask your agent about these things and be aware that although you may think your agent is a key communicator, he or she may not be. A communicative and professional agent would have let his or her clients not only know that someone was coming by to see the unit but would also conduct himself/herself in such a professional manner as to make it easy and stress-free for a prospective buyer to want to purchase the home. In this unique market, and in the aftermath of the mortgage crisis, we as real estate agents should work towards reviving the professionalism and integrity of our industry so that we can do our part in this nation’s recovery. Recovery starts with one person who changes the image of the unprofessional and shady real estate professional in the mind of just one client who then changes the mind of another and so on.
Tell us a little bit about your experience, company history and the services you offer.
At CRESTICO, we pride ourselves on being the company that is changing the face of the Real Estate industry with our top notch service philosophy which focuses on meeting your needs as a consumer. Our Home Ownership Services Strategy includes affiliations with mortgage, title and closing services, home warranty and other services that are essential in the real estate transactions that are made available to customers like you. It’s our attempt at making the home buying or selling experience less stressful to you, presented as a one-stop shopping experience. CRESTICO is your one-stop shop for all your real estate and mortgage lending needs. We were created for the purpose of serving a homeowner with the highest quality service and providing all the services you could possibly need in connection with the purchase and/or sale of your home.
We will work for you to get you everything you need. We have great relationships and ties in the community and real estate professionals, and can get you the best pricing possible on loans as well! Sometimes the details of buying and selling real estate can be confusing, scary, emotional and nerve racking. We believe in researching the details and presenting them in common terms in order to put your mind at ease and take you through the process with no stress and frustration.
Can you briefly explain what a reverse mortgage is?
A reverse mortgage is loan available to homeowners who are over 62 years of age. It enables them to convert some of their home equity into cash. Generally, it is a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. The loan is called a reverse mortgage because the traditional mortgage payback stream is reversed. Instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.
What are the most common circumstances when a homeowner would qualify for a reverse mortgage and want to consider applying for one?
There are several factors required for a reverse mortgage, first the age qualification, meaning that borrowers listed on title must be 62 years old. Next, there must be a primary lien, meaning that a reverse mortgage must be the primary lien on the home. Any existing mortgage must be paid off using the proceeds from the reverse mortgage. (Reverse mortgage proceeds can be used.) Third, there are occupancy requirements, which means that the property used as collateral for the reverse mortgage must be the primary residence. Vacation homes and investor properties do not qualify. Fourth, there are the taxes and insurance which must be kept in current status along with other mandatory obligations, including condominium fees, or the borrower may be susceptible to default. Finally, the property condition must be kept up and the borrower is responsible for completing mandatory repairs and maintaining the condition of the property.
How long does the process typically take?
From application to closing, it generally takes 20 to 30 days, as in most typical real estate transactions.
What are some of the biggest issues you’ve seen homeowners in Southern California face when it comes to a reverse mortgage?
Unfortunately, California was one of the hardest hit markets in the recent economic crisis. Many seniors bore the brunt of the misfortune. Sadly, some lenders tended to aggressively pitch loans to seniors who cannot afford the fees associated with them, not to mention the property taxes and maintenance. Others wooed seniors with promises that the loans are free money that can be used to finance long-coveted cruises, without clearly explaining the risks. Some widows faced eviction after they were pressured to keep their name off the deed without being told that they could be left facing foreclosure after their husbands died. Now, as baby boomer generation heads for retirement and more seniors grapple with dwindling savings, the newly minted Consumer Financial Protection Bureau is working on new rules that could mean better disclosure for consumers and stricter supervision of lenders. More than 775,000 of such loans are outstanding, according to the federal government.
What advice would you give to people in the Southern California area who need help with a home loan?
I would encourage them to educate themselves on the options that they have when it comes to loan products and mortgage programs. At CRESTICO, we believe that the educated consumer always makes the best decision for himself and his family which ultimately results in a better society and economic environment for everyone.
What’s the best way for people to get in contact with you and your company?
There is a new law, AB 1373 (eff. Jan. 1, 2011) which places restrictions and disclosures on grant deed copy services. This law cracks down on the mailed advertisements sent to property owners offering, for compensation, to provide a copy of the grant deed or other record of title by making it a crime unless certain disclosures are provided and the advertisement doesn't mislead a person into believing that the company is affiliated with a government agency.
HUD-1 Going Away: Understand New Closing Forms, Procedures
The HUD-1 settlement statement and Good Faith Estimate forms are going away on August 1. The Truth in Lending Act disclosure is going away as well. In their place will be a new closing disclosure and a new loan estimate. There will be changes to the closing process as well, including a new rule requiring everything to be in place three days prior to closing. And last-minute changes face new hurdles. Learn about the changes in this walk-through.
There are also new rules for the closing procedure. One rule requires all forms to be ready three days prior to closing. NAR is recommending you actually get everything ready seven days prior to closing, so when you go into the three-day period, you don’t have to make any changes. Because making changes as the clock winds down comes with a cumbersome set of hurdles.
What this means is, you and the other settlement service providers, including the lender and title agent, are under the gun to get everything squared away earlier than you have to today. And the buyers and sellers have to be cooperative as well, because if last-minute changes are made, a new three-day waiting period kicks in, at least in some cases.
The good news is, you have until August 1 to get familiar with the new forms and learn about the new closing procedures, and NAR is hosting a series of webinars on the topic. To learn when the next one is, go to Realtor.org/respa.
The video above, with Ken Trepeta of NAR Government Affairs, provides a concise overview of what to expect and also shares some tips on how to decrease the likelihood of snags in this new environment.
The CFPB’s goal in making these changes is to increase transparency for consumers. Start your education process by accessing the 5-minute video.
