Income for Life

We've just got to accept it

Posted by Rob Minton
Follow me on Twitter

Two articles on USAToday.com this morning kind of sum up this recession for the average U.S. citizen.

One article explains that all the government borrowing and spending meant to pull us out of this recession will put an extra $55,000 or so tax burden on each household in the U.S. That's the biggest bump in the bill our government has asked us to pay since expanding Medicare coverage in 2003. It means that while unemployment is rising and incomes are falling, our household debt is growing.

The other article says that banks will attempt to cover some of their losses by hiking fees, this time on checking accounts. So even though legislation was drawn up to protect us from banks taking it out on consumers by raising credit card interest rates, the financial institutions that are so much to blame for this whole economic mess are still finding ways to pass the cost of it onto their customers.

Read these two articles, and your first reaction might be "This just isn't fair."

And you know what? You're right. It isn't.

But in this recession, not much has been fair. True, some Wall Street firms have paid the price for being too greedy, but how many innocent bystanders to this mess have had to pay a price, too?

It's not fair that your home equity line has been taken away from you, even if you've never been late on a payment. It's not fair that your neighbors, who might skip a house payment or two, can get their loans "modified" while you, even though you've done all the right things, can't even refinance to take advantage of lower home loan rates.

If you're a real estate investor, it's not fair that your assets have dropped in value because of the foreclosures in the neighborhoods where your investments are located. If you're a retiree, it's not fair that your nest egg has shrunk because stocks and mutual funds have been dragged down by this mess.

It's not fair that the many must suffer because of the mistakes of the few.

It hurts; I know. But I also know this: We must accept that this whole situation is unfair. And then we must move on.

Here's the thing: We can't control "fair." In fact, in much of life, we can't control what happens to us. We can only control how we react to it. If you get all caught up in "This is unfair," it can paralyze you. Complaining that everything is unfair will get you nowhere.

As I said, we must just accept the unfairness. We must not let "unfair" distract us from our goals. Don't let the things you can do nothing about get in the way of the things you CAN do something about.

Credit card interest rates are higher? Yep, so get to work on that debt.

The value of your home has dropped? Yep, so challenge your property tax assessment.

Gas prices are climbing again? Yep, so try to drive a little less.

It is so easy to complain about the things you can't control. It's so easy to get caught up in "It's not fair." But this will get you nowhere fast. The saying goes, "Grin and bear it." I have found that if you can just accept that there will be unfairness along the way, it will be easier to stick to your plan.

And if it helps you to believe in the Karma thing -- what goes around comes around -- and hang onto that hope that if you just keep doing everything right you will somehow be rewarded in the end, then fine, believe that the unfairness will be made up to you. But if you can actually take action instead of complaining "It isn't fair," then I guarantee you will be better off in the end.

Fear makes us irrational

Posted by Rob Minton
Follow me on Twitter

The big news on the financial front today is that U.S. consumer confidence rose sharply in May, higher than expected, which could mean the mood in the States is getting better when it comes to the economy.

And that makes sense in some ways. We have long been gripped by negative thinking and fear. The survey that determines this consumer confidence level reports that fewer people are down on the job market than have been recently. I have written before that confidence -- by consumers, investors, employers, etc. -- will be key to our economic recovery. So this recent survey is good news.

Well, not all of it.

The survey indicated that consumers are increasingly likely to buy a new car in the next six months. The number of consumers who gave this answer, 5.5 percent, is the highest level in a year. It would seem to indicate that buyers recognize the problems of the automobile market are to their advantage. With the industry struggling, prices are low, finanacing is attractive and, if you have good credit, incentives are plentiful.

The survey also indicated that only 2.3 percent of respondents said they'd consider purchasing a house in the next six months. This to me is a head-scratcher.

Like the auto industry, most housing markets are struggling. This means that, like the auto industry, prices are at very low levels. Like the auto industry, financing for homes is attractive. And incentives? Well how about up to $8,000 in tax credits for first-time buyers? I'd say that's an incentive.

What's more, homes have tax benefits that cars don't. And I don't care what market you live in, how bad it is, you have a better chance at your investment appreciating with a home than a car. In fact, I will GUARANTEE your new car purchase will depreciate. It's worth thousands less than you pay as soon as you drive off the lot with it.

And yet the number of people who will buy a home in the next six months is less than half of those who plan to buy a car. Why?

I believe that fear makes us do things that are irrational. And we have been reminded for the past two years that real estate is at the heart of this recession. Real estate is why we're in this mess, we're told, so our fear is around real estate. And so while might be irrational to believe a car right now is a better purchase than a house, that's what consumers seem to be saying.

Is it a good time to buy a car right now? Absolutely. I am not saying it isn't. But it's also a great time to buy a house right now -- for several of the same reasons it's good timing for a car -- and people just aren't understanding that, apparently.

It's fear that gets them all mixed up.

New tax credit twist could help U.S. real estate investors

Posted by Rob Minton
Follow me on Twitter

If you are a real estate investor interested in selling a home in the United States, you could soon be getting a boost from the U.S. government.

On May 12, U.S. Housing and Urban Development secretary Shaun Donovan announced a plan that will allow first-time home buyers to use the federal $8,000 tax credit toward their down payment on Federal Housing Administration loans.

The plan will allow FHA borrowers who qualify for the credit to access the funds at closing, using them for down payment, rather than having to wait for a check from the IRS after purchasing the home.

"We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment," Donovan said at the National Association of Realtors' Midyear Legislative Meetings & Trade Expo, according a statement released by HUD.

The FHA will allow approved lenders and state and local agencies to issue bridge loans to first-time buyers, which will provide funds at closing, then be re-paid when the borrower gets his or her tax credit.

Donovan said that FHA will announce all the details of the plan soon.

If you are an investor with tenant-buyers in a rent-to-own home, this program could give them a big-time incentive to buy out your home now. Your tenant-buyers would have access to $8,000 (or 10% of the value of the home, whichever is less) to use as funds at closing. You should share this information with your tenant-buyers immediately.

The first-time home buyer tax credit was passed in February, and gives those who have not owned a home in the past three years a credit of 10 percent of the purchase price of a new home, up to 8,000.

Borrowers must meet income requirements to be eligible for the full credit - it drops for single borrowers who earn between 75,000 and 95,000 a year and for married couples earning 150,000 to 170,000. Buyers with incomes over those thresholds are not eligible for the credit, which expires Dec. 1.

The National Association of Realtors has been pushing for down payment assistance legislation, and this new program brings back the "no-money" down type loans of recent years - but with a big exception: The government is providing the down payment.

FHA currently requires as low as a 3.5-percent down payment, which means an FHA borrower who qualifies for a loan could buy a 230,000 house and have his or her down payment covered by Uncle Sam.

With interest rates that continue to hover around all-time lows, this soon-to-be-finalized program will add even more affordability for buyers in the housing market.

Here is a link to the NAR's release on the announcement of the program:

http://www.realtor.org/press_room/news_releases/2009/05/re_summit

Good news among the bad

Posted by Rob Minton
Follow me on Twitter

In my post below, "Time to get off the fence," I wrote that I have been seeing articles in major publications hinting that the bottom could be in sight for some real estate markets here in the United States.

Now, it seems we might have some more indications that the worst has possibly past for some markets.

Today, the National Association of Realtors released sales statistics for the first quarter of this year. Of course the headline for this Associated Press article is "Median home prices fell in US in Q1," as the headline writers continue to beat us over the head with negativity and continue to get paid to state the obvious. Anyway, the article says the median home price here in the States fell about 13.8 percent from a year ago.

Considering the fact that so many foreclosure bargains are making up our sales statistics these days, the price drop is totally expected. Frankly, I am a bit surprised that it was only a 13.8 drop. But buried in the bad news (depending on how you look at it) about median home prices --  and disguised as even more bad news -- was a bit of good news.

From the article:

"Home sales fell in all but six states -- Nevada, California, Arizona, Florida, Virginia and Minnesota -- where buyers have been able to snap up foreclosures at a deep discount.

Sales more than doubled in Nevada, rose 81 percent in California and grew 50 percent in Arizona -- signaling that the worst may be over for those distressed states."

Notice the language "Home sales fell in all but six states." That sounds like bad news. But the real news, in my opinion, in this story is the DRAMATIC increases in sales in the states that were hit the earliest and the hardest by the real estate bust.

As I said in my earlier post, there is evidence that first-time homebuyers and bargain shoppers are finally helping revitalize some of the worst housing markets. I think this is a good sign that other markets will follow, just as they lagged the California, Arizona and Nevada markets on the way down.

The fact that foreclosures make up about half of all U.S. sales right now will keep prices flat for a while, but as more buyers come out of the woodwork and sales of existing homes continue to climb, we will start to see price increases again.

It's a good time to pay attention to sales of existing homes and foreclosures in your market if you're trying to time the "bottom" of the real estate market. If sales are on the rise and foreclosures rates are dropping, it is a good sign prices will soon start to rise.

I will say it again -- now is a good time to buy!

Time to get off the fence

Posted by Rob Minton
Follow me on Twitter

It wasn't the sort of thing you see in the news these days, not ever. But the lead for a New York Times article the other day was "Is this what the bottom looks like?"

The article pointed out that some of the markets across the country that were earliest hit by the real estate bust are finally starting to show signs of life (read the article here). It said some markets, such as Sacramento, Calif., are actually starting to show signs of a rebound.

Did you catch that? I said rebound! That's not a word any prognosicators have been comfortable using yet. But here we are, with news stories starting to pop up that we might be approaching the "bottom" of this housing market.

The New York Times is not alone, either. Two recent USA Today articles have actually hit on bits of good news, as well. One article is about the demand for foreclosure bargains being so high in some markets that homes are starting to get multiple offers, which, the article suggests, could be a sign that the downturn is nearing an end.

In another article, USA Today's Stephanie Armour reports that incentivized first-time home buyers are snatching up homes at today's bargain prices, which is also helping housing markets.

I realize a few positive articles does not mean we are finally at the "bottom." No one can time the bottom -- never have, never will. However, I will say this:

IF YOU HAVE BEEN THINKING ABOUT BUYING A HOME, THEN BUY A HOME NOW!!!

Sorry for yelling, but it's time to get off the fence. If you have been wishy-washy about taking advantage of today's low prices, now is the time to stop being wishy-washy. If you want to buy before the rebound, you should do it now. Because the rebound is coming. We might not be at the bottom, but you can almost see it coming. There are three reasons to think a rebound is near:

1. If the markets that first got hit with foreclosures are starting to rebound, you can bet the other markets will follow. It happened with the crash that way, and it will happen with the upturn. And some of the worst neighborhoods in America in terms of foreclosure are starting to show revitalization. From the USA Today article:

""What I'm seeing is incredible. At ground zero in Florida, my business has tripled overnight," says Suzanne White, an agent at ZipRealty in Tampa. "There isn't grass overgrown and mosquitoes all around in these neighborhoods anymore. First-time home buyers are saying rates are so low they can pay less than rent. The bank-owned properties are getting multiple offers and selling higher than asking price."

Which leads us to Reason No. 2 ...

2. If there are multiple offers and bidding wars, you can bet that prices will start to rise. Bidding wars normally mean more buyers than sellers are out there -- which isn't the case yet -- but competition for the great deals on homes is going to start driving up prices. That, in turn, will bring out even more buyers. For some reason, home buyers buy when everyone else is buying. And when that happens, it will accelerate the price increases.

Which is also why Reason No. 3 is so important ...

3. In this day and age, public sentiment and media hype drive markets. We saw it with the dot.com bubble. We saw it last summer with the ridiculous run-up in oil prices. We saw it with the massive sell-off of financial stocks and even with the huge bounce in the price of gold. With the Internet and 24-hour news channels hungry for sensational headlines and sound bytes, ANY kind of speculation, ANY suggestion of good news or bad, moves markets.

If media stories are starting to pop up about the bottom being here, the markets will react as though it's here. And if one paper is reporting good news, the next one will, then the next one -- just as they attempt to beat each other to the really bad news. And when the media sentiment turns, buyers will return to real estate in droves. How many have been sitting on the sidelines waiting for the news anchors to tell them it's OK to buy a house again? If you are thinking of buying, buy before this rabid pack of buyers gets released into the wild.

There have been plenty of real estate investors who have made money in this down market, despite not trying to figure out or wait for the bottom. There still is money to be made. And if you've been waiting for some sort of sign that it's time for you to make a move, consider this your sign.

I can't tell you the timing of the absolute bottom, but the writing is on the wall. I CAN tell you the timing is right to get off that fence.

Still think it's a "bad" market?

Posted by Rob Minton
Follow me on Twitter

Everywhere you turn, you hear or read that we are in a "down" real estate market here in the United States. There's no question that the mortgage mess and the drop in real estate prices have created uncertainty and nervousness about real estate. If you want to call it a "down" market, that's fair.

But don't mistake a "down" real estate market to mean a market in which investors can't make any money. A "down" real estate market does not mean a "bad" market.

If you think about it, those who have recently lost money on real estate were those buying at the height of the market -- flippers and speculators, mostly, trying to make a quick buck. They're now stuck with homes they can't sell, or even rent for enough to cover their losses. To me, the market in which they bought those homes was more of a "bad" market to buy in. Now, with prices having dropped so much and with a huge inventory of homes to choose from, investors are actually at an advantage. And investors ARE making money in this market.

Below is a check for $10,000 an Income for Life investor recently received from a tenant-buyer as a down payment on a rent-to-own purchase.

 

This investor received this large up-front payment on this property, AND is earning positive cash flow every month. How could anybody say that was a bad investment?

The fact is that despite what you hear about the real estate market, investors ARE making money. There is still great demand for rental properties, and people who might have qualified to purchase a home just a couple of years ago are now among those in the rental market. Wouldn't a tenant who had saved up enough money to put down $10,000 on a home make a pretty good tenant? Also, with prices lower, it is now easier to find rental properties that will give you positive cash flow each and every month.

Just as stock investors can make money in both bull and bear markets, real estate investors can make money in both up and down markets. So when it comes to real esate investing, don't just assume that a "down" market means a "bad" market.