Single family homes offer an opportunity to borrow high loan-to-value mortgages at fixed rates for long terms on appreciating assess with tax advantages and reasonable control.  I believe duplexes and/or small multi-plexes offer even more opportunity for cash flow.

This is the year to make some real progress on your resolutions (especially if they include purchasing some investment real estate to round out your financial portfolio). First, invest some time learning about rental properties by attending a FREE webinar on January 4th at 5:00 PM PST by national real estate speaker Pat Zaby. Click here to register.

FHA lowered the loan limits in October, but has reconsidered and now the limits are back to previous levels.  Good till 12/12.  And, you wonder why no one can keep up with what’s happening in the mortgage world!!??

• Single Family Residence       –                417,000                       
• 2 Unit                                                  -                 533,850           
• 3 Unit                                                  -                 645,300                                   
• 4 Unit                                                  -                 801,950                       

 Remember, you can get into an FHA secured mortgage for as little as 3.5% down!

 VA  Same as above, however there is such a thing as a VA Jumbo loan.  A jumbo loan is a loan amount (after down-payment) of more than $417,000 on a single-family home in the Portland Metro area.

• Single Family Residence       –                417,000                       
• 2 Unit                                                  -                 533,850           
• 3 Unit                                                  -                 645,300                                   
• 4 Unit                                                  -                 801,950                                    

OCTOBER 2011 PORTLAND METRO REAL ESTATE UPDATE!

Happy Halloween!!  I realize I’m a little late with this October edition of my real estate update, but I’ve been on my excellent “Aussie-Kiwi” vacation visiting my sister in Australia/New Zealand for three weeks and I’m still digging out from the pile of paper, files and work as I try to catch up.  I’m not sure I can give much insight into the market for this month (as I missed most of it).  I can share a few statistics and items of interest.  I can generally assess that “volume is up and prices are down” for real estate sales!  That, of course, makes sense.  As prices drop, more buyers are willing to venture back into the real estate market.  Inventory has decreased but the market activity is also decreasing in the condo markets but overall inventory lightening and market action trending up in single family market.  However, we were up to 6.7 months of inventory for September (from 6.2 months in August).  But, that’s typical for the time of year.  Sales activity in the Portland Metro area showed improvement in closed and pending sales this September compared with September 2010 and the inventory level remained much lower than the same month in 2010 (10.5 months).

BUYERS:  As a buyer, you are often seeking the lowest interest rate.  And current rates are excellent, hovering at around 4%, give or take!!  However, interest rates are not your only concern.  You must also consider and compare the “annual percentage rate” (APR).  APR is a federal calculation to help consumers determine which loan is best.  It adds all the costs of getting the loan to determine your true overall charges.  If your APR is more than 2/10 of a percentage point more than the comparables that equals measurably higher closing costs!  Ask for a “Good Faith Summary of Costs” from the lenders you are interviewing so you can compare “apples to apples”!  Also, start thinking ahead as a purchaser to when you might be a seller.  There are some benefits to the future assume-ability of FHA financing. Read more!  And, get pre-approved!  Here’s why….

SELLERS:  You may have heard rumblings in the news about the “new and improved” HARP (Home Affordable Refinance Program)!  The old program did not really work.  This one could be a little different as the key is getting the banks to bite!!  The new version will allow certain homeowners (underwater, yet current on their payments) to refinance up to 125% LTV (loan-to-value) if their mortgage originated prior to June 1^st, 2009.  The benefit for banks is that the banks will not have to re-purchase bad loans.  The new HARP would eliminate LTV, eliminate appraisals and reduce documentation.  This is a very simplified explanation and I’m sure more information will surface.  As far as selling property, it’s still pricing, pricing, pricing!!!

INVESTORS:  What a time to be a real estate investor!!  I know…I know coming up with the down-payment and getting the financing is a challenge!!!  I had to beg, borrow and (almost) steal to close my last purchase.  There are investor loans out there for 10% down, although the best interest rates are with 20+% down.  But, you will never know unless you visit a mortgage broker and “test the waters”.  There are cash-flowing properties out there!  It’s just something to consider to add to your overall financial strategy.  And, I’ve definitely learned some lessons managing my investment properties that I would like to share!

There’s always the good, the bad and the ugly!!!  That being said, personal experience is a great teacher but a very expensive way to learn.  So, I’d like to share some of what I’ve learned from managing my own investment properties.

If you’ve read any of my blogs, you know I have “put my money where my mouth is” concerning investment real estate and own multiple rental properties. I love that you use other people’s money (a mortgage) to handle the major portion of the purchase of an investment, the tenants’ pay off that mortgage (albeit slowly), you immediately enjoy the available cash-flow + realize the lowered principal balance/equity accrued caused by the tenants paying down the mortgage and the tax advantages! So, even if there is NO appreciation in the housing marketplace (which I think we can expect in the short-run, but eventually our economy will recover and natural appreciation will begin), you win!! I certainly can’t say that about my mutual funds!!

Nothing is perfect, so what’s the “down-side”?? Everyone has heard a “tenant from hell” story, so I won’t go into detail about my personal experience. I’ll “jump to the chase” and tell you what I’ve learned!!  I am determined NOT to get jaded. I always listen to my gut and I knew something was askew.  I just should have acted….plain and simple!  I bend over backwards to have a personal empathy with the residents of my homes (which is what I consider them, “residents” and “my homes”) but there are certain reasons why this time I let a situation go too far.  Listen and learn!

• I try to purchase properties that “I would live in…”.  Maybe they would not be perfect for me now, but in my younger years I would have said “what a score!!!!”.  I want to bond with my property the way I think the next resident will!!!
• I don’t necessarily “bank” on credit reports, but unless you’ve had a lot of experience I would run one!  I have to say that many of my best tenants were attempting to repair their credit and with that focus they became my best tenants EVAH!
• I  also call but don’t always “bank” on reports from existing/previous landlords.  If the tenant is still there and the landlord wants them out at all cost, they will tell you anything (so they don’t have to evict them).
• I do rely heavily on meeting and talking with my prospective tenants.  I’m not saying a professional con couldn’t pull one on me, but I trust my gut.  Things can go wrong and if you suspect they have…act, don’t react!
• I definitely check with employers.  Some are more “forthcoming” than others, but checking with employers will give you peace of mind.
• I love it when prospective tenants bring family, friends, whomever…it usually means they are really trying to get a consensus on their new living arrangements (and you can learn a lot from family and friends).
• I do not allow smoking in my units.  I know it’s tough on smokers but I have to protect the integrity of the property.  I’m not big on telling others how to live their lives but cigarette/cigar smoke residue is unacceptable to the future value of any property!
• I am sorry to say, that from now on if I even smell smoke on a prospective resident, I would not trust them to not smoke (despite the fact that all my rental agreements incorporate “no smoking” as a contingency of the agreement).  Smoking is a tragic addiction but I am not going to chance it in my properties any more!
• I do allow pets.  Do they occasionally do damage? …yes!  However, it’s usually something that can be covered by a security deposit and pet deposit.  I have this theory that people that love & care for their pets will often care for property in which they live.  They, at least, take responsibility for lives other than their own.  I do want to meet and “vet” (pun intended) the prospective animals.
• I pay for garbage.  I don’t pay for other utilities but I pay for garbage.  I just don’t want a notice from the city that because a resident is “cutting corners”, garbage has piled up.  I’d rather just pay for garbage but let everyone know how much you’re willing to pay (i.e:  one garbage can a week, any extra will be billed to the tenant, etc).
• I don’t pay for water.  I have installed sub-meters for separation of water bills for duplexes without separate meters (much cheaper than installing separate meters for the city to read).  You have to read them (or have the occupants read them) and do the calculations based on usage.  I also have investor/clients who merely divide the water bills and disclose the policy (their tenants accept the policy upfront).
• I try to get on a “rental rotation” that have the properties being rented no later than October of each year (preferably even earlier in the calendar year due to the “rental pool” lessening as we approach the holiday season).  Of course, you need to know your location.  IF you have a specific pool of potential renters (such as OHSU students/residents, as one example), you’d want to get on a rotation that reflects their schedule.
• I now have a new rule that I do a walk-through the property at least once a year (with the re-signing of the lease).  If I have ANY reason to suspect that something is “awry”, I’ll do it whenever (with 24-hr notice, of course).  Sometimes it’s easy to become complacent with long-term, paying residents…just don’t!
• I have, thus far, managed my own properties.  If you decide to utilize a property management service, I’d ask what their policies might be concerning walking through the properties.  If they don’t have a provision for this, I would insist or just do one on your own, if you feel comfortable doing so.
• I try to make it as personal a relationship as possible.  I want to be empathetic, sympathetic and consider each resident as an individual.  Life isn’t perfect.  Good “karma” has no monetary value.
• I absolutely listen and try to respond to the residents of my homes!  I try to be fair and available!  I can’t do everything they want necessarily, but I can listen and decide.

I’ve probably left out a lot but these are some reasonable lessons in the life of one real estate agent/investor!!!

An Investment Alternative

To say the investment market is unsettling is an obvious understatement. The market is up, then down 8% in the last ten days and the news suggests that this roller-coaster ride may continue for awhile!

Preservation of capital is probably today’s most important investment consideration (especially for those enjoying or nearing retirement) and making a profit would be a bonus. Of all the conventional investment alternatives like stocks, bonds, mutual funds, gold, commodities, CDs and annuities, housing could be one the best asset classes in America.  I always say that I’m a great believer in investment real estate: you use other people’s money (a mortgage) to handle the major part of the purchase of an investment, the tenants’ pay off that mortgage (albeit slowly), you immediately enjoy the available cash-flow + realize the lowered principal balance/equity accrued caused by the tenants paying down the mortgage!  So, even if there is NO appreciation in the housing marketplace (which I think we can expect in the short-run, but eventually our economy will recover and natural appreciation will begin), you win!!  I certainly can’t say that about my mutual funds!!

Homes have had a 30% to 40% price correction in the past four years. Mortgage rates are at near all-time low rates with 30 year terms available for investors. Rents have increased significantly over the past two years while vacancy rates have decreased. People will always need a place to live.

Five year certificates of deposits earn a little over 2% but rental properties are yielding much more than that. Income properties are tangible assets that have benefited dramatically in inflationary times. Cash assets can be devastated by inflation and diversifying into income properties could provide some protection.

Single family homes, duplexes and multi-plexes offer investors the opportunity to borrow large loan-to-value mortgages at fixed rates for long terms on appreciating assets with tax advantages and reasonable control. Investing in rentals can provide a high rate of return!

August 2011 Portland Metro Real Estate Update!

“Summertime and the livin’ is easy”!  Or, perhaps it just feels “easier”.  After all, the summer season took it’s sweet time getting to the Portland area so we deserve whatever “easiness” we can scrounge!  Otherwise, if you’re suffering from a bit of motion sickness, it’s probably the wild ride we experienced with our stock market!  So, how’s the real estate market, you ask?  The end of 2010 and the first part of 2011 definitely saw an upswing in real estate activity (not prices, just activity) in the greater Portland Metro!  I’m hoping this last round of erratic economic news doesn’t dampen the level of enthusiasm.  Closed and pending sales were both up in July 2011 compared with July 2010.  Also, the inventory level in July 2011 was down 3.8 months compared with the same month a year ago.  However, inventory is now at 7 months, up from 6 months of inventory last month!  Both the average sales price (up 3%) and the median sales price (up 1.9%) increased from last month.  Like I said:  erratic!!  I believe the increase in activity is directly related to the diminished pricing and the low interest rates!!  I’m seeing/hearing about more cash offers, as people feel that “parking” their cash reserves in real estate could be a good alternative.

BUYERS:  So, what does this mean for buyers?  Interest rates are low, low, low!!  They’ve been hovering in the high 3’s/low 4’s.  There are a myriad of mortgage calculators available on the web (one at www.fabulousportland.com located in the right hand navigation bar).  So, just play with the numbers.  If you want to make a housing change, pick an arbitrary loan amount and see what the difference is in your mortgage payment at a 4%, 5% or 6% interest rate.  Now see the difference in payments over 30 years!  The Federal Reserve is promising to keep interest rates low for awhile in hopes of spurring our economy, but I just wouldn’t want to miss these rates.  It would definitely be one of those “coulda, shoulda, woulda” moments at a later date.  Just don’t overbuy for your financial situation.  Look at your long-term goals and consider real estate as a long-term investment.

SELLERS:  So, what does this mean for sellers?  I sound like a broken record, but buyers are looking for competitive pricing!  So, it’s all about pricing, pricing, pricing!  If priced aggressively, properties are moving and I’m even seeing multiple offers!  The condition of the property will also affect how long it takes to sell.  Sharp, turn-key properties that are priced correctly move relatively quickly.  “Fixers” or cosmetically challenged properties are harder to price and, thus, will take longer.  The average total market time is 132 DOM (days on market).  Total market time is the number of days from when a property is listed to when an offer is accepted on that same property.  So, 132 DOM shows you there are still lots of overpriced properties that are “chasing the market down” in their asking price.

INVESTORS:  So, what does this mean for investors?  A recent report that just came out says that now it is actually cheaper to buy than rent.  This hasn’t been the case for many years.  And at the same time, the demand for rentals has greatly increased due to less buyers in the market.  My personal experience with my rentals is that Portland area rents are increasing.  So if you already own a home, this may be an amazing time to buy rental property and be able to cash-flow them.  You can get into an investment property for 20% down.  Real estate investments could help off-set the wild roller coaster ride we’ve experienced in the stock & bond markets!

OVERALL:  If you look at the numbers and factor in the economic situation of the world, you have to ask how long will it take to get out of this real estate slump?  We may have to consider this the “new normal”.  We currently have 7 months of local inventory (our 2011 high was 11.3 months) plus an unknown amount of “shadow inventory” of foreclosures from the banks (they are slowly foreclosing and releasing this inventory so as not to have too many foreclosures on their books and not saturate the markets), not to mention more short-sales.  From our local statistics and the national and international economic indicators, I don’t see any dramatic upswing in values ANY time soon and believe it will at least 5 more years with possibly more diminished pricing in some areas.  However, if a life change is desired and/or necessary…what you lose on the sale of a property should be gained on your purchase.  Sometimes you just have to move on……

I never liked roller coaster rides, even as a child! So, I find the current stock market VERY unsettling! The market is down xxx amount (I can’t keep up with it) in the last few days. I could take my savings out of the stock market and mutual funds and stick it in a sock drawer but I’m not sure that’s the answer either??? I’d probably inadvertently put my socks through the wash…and then what?

Preservation of capital is probably today’s most important investment consideration (especially for boomers nearing retirement) and making a profit would definitely be a bonus. Of all the conventional investment alternatives like stocks, bonds, mutual funds, gold, commodities, CDs and annuities, housing is an asset class to consider, in my humble opinion.

Real Estate has had a 30% to 40% price correction in the past four years, making the affordability factor very attractive. Mortgage rates are at near all-time low with 30 year loans available for investors. Rents have increased significantly over the past two years while vacancy rates have decreased. People will always need a place to live.

Five year certificates of deposits earn a little over 2% but rental properties are yielding much more than that. Income properties are tangible assets that have benefitted dramatically in inflationary times. Cash assets can be devastated by inflation and diversifying into income properties could provide some protection.

Investment properties offer investors the opportunity to borrow large loan-to-value mortgages at fixed rates for long terms on (hopefully/eventually) appreciating assets with tax advantages and reasonable control. Your tenants pay off the mortgage (principal, interest, taxes and insurance) while you enjoy whatever immediate cash flow is available.  Thus, even without appreciation you are gaining equity through principal reduction!

Financing investment properties is a bit more of a “song & dance” these days, but it can be done!  You can read some of my “tales of woe” from recent personal experience or fume with me on recent “highway robbery“!

I have a program developed by Hector Ariceago of First American Title that I have permission to share with interested investors, please e-mail me at jj@janeesejackson.com and I would be happy to send it to you.  It helps determine yield on potential investment properties.  I would be happy to sit down and brainstorm with you on a plan/strategy for including some investment real estate in your overall financial plan!

I continually write (or is it whine) about the constant changes and new restraints regarding real estate mortgages.  It seems that banks don’t REALLY want to lend money?  I know this is whiplash from the years of unrestrained lending practices, but they are often punishing the wrong people.  I also constantly mention that real estate can be a great addition to any financial portfolio!  It’s all about diversification!!

There are new rules and guidelines from Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) for financing investment real estate.  If you feel you are ready or want to prepare to add real estate to your overall financial strategy, it’s worth brainstorming with a real estate, mortgage and tax professional to get your “ducks in a row”!  Some of the new guidelines include:

• minimum 20% down (better interest rate with 25% down)
• No gift funds can be used
• the seller can pay up to 2% towards closing costs
• the borrower can have no more than 4 mortgages total (including your primary residence).  5-10 investment properties have additional rules)
• must have 6 months PITI (principal, interest, taxes, insurance) for the subject property plus 2 months PITI reserves on all other properties
• if the buyer has no history of property management covering two years, must qualify for full PITI regardless of expected rental income
• there is NO loan program for investment property purchases under FHA and VA (though you can do an FHA streamline refinance on a rental with a current FHA loan)

If this is your first rental purchase, there are certain special requirements.  Be sure and document all cash for the down payment and reserves.  You must qualify for the purchase with no allowed rental income.  Rent loss insurance is required.  One of the hottest programs is homepath.com where you can put 10% down with no mortgage insurance and no appraisal required.  Lenders offer the loan and Fannie Mae backs the terms.

What if you already have 4 mortgages or more?  Fannie Mae has a program for financing up to 10 mortgages but few lenders participate and their individual terms can vary and those lenders may add their own restrictions.  You could consider refinancing your primary home or other investment properties to pull cash out to purchase new properties.  I attended a class where the mortgage broker then “apportioned” a percentage of the loan amount used for the rental on the schedule E and the remainder on your primary home.  You would definitely want to discuss with your tax professional to confirm.  Obviously, any refinancing would be for the seasoned investor who had meticulously “run the numbers” for their personal financial situation!

The absolute beauty of holding real estate as part of a financial strategy is that you purchase the property leveraged with other people’s money, the tenant makes the PITI payment, you pocket the cash flow, you enjoy the tax incentives.  As time goes by, your equity has increased through the tenants paying down the principal, rents generally increase thus increasing your passive income.  Then you either allow the rental income to supplement your regular or retirement income OR you sell with your initial investment increased both by increased equity and whatever natural appreciation may have happened in your marketplace!

I have a new duplex project and my partner and I have been planning, preparing and putting in some hours.  This is not nearly the scope of a remodeling project as our last two duplexes; where we had to refinish hardwoods, gut kitchens, add insulation, replace sinks, extensive prep/painting & more.  All the same, it takes a bit of imagination, time & energy.  This new investment is a substantial 1940′s side-by-side duplex in another superb neighborhood that has been basically maintained, occasionally upgraded and obviously loved!!  The hardwoods on both levels were in great condition, none of the vintage had been disturbed and with some minor imaginative cosmetics, I believe we will have a great piece of real estate!!

We started with taking advantage of the Sherwin-Williams paint sale and utilized their low-VOC/HDTV color palette and threw some color on the walls.  I didn’t agonize as much on these colors as I did with the last two.  Maybe I’m getting more confident in my attempts at design?  The kitchen screamed for paint and re-surfacing the cabinetry plus new hardware from the Habitat for Humanity Re-Store (my home away from home during these remodels…love finding a deal)!!  We put our kids to work on digging a ground space for a new stone patio for both sides and enclosing the area with a fence.  It was like putting a puzzle together and we learned the hard way that the directions can be very general and not specific to your situation!

We are upgrading some lighting, putting in an electric fireplace (found a great buy on one on Craigs List today), repairing some dry-rot, dry-locking the basement.  We held our first open house yesterday (not everything finished but getting closer).  Even with the holiday weekend, we enjoyed a great turn-out and may have found some great new occupants!!  All this is making the tough mortgage process I endured almost worth it!  :-).  I believe in real estate as a great long-term investment!

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I’ve got this obsession!!!  It’s called “Real Estate”!  It’s not just a purpose, it’s a drive!  It might be referred to as “OCD” (obsessive-compulsive disorder) without the “C”.  I’m definitely NOT compulsive.

I am starting my 3rd duplex/investment property/renovation and if you read any of my former blogs/rants-n-raves about my experiences with those projects you might appreciate some of these ramblings more.  (see the Blogroll on the right hand side of my home page and go to August-September 2009 or July-August-September 2010).

So, every real estate investor has their own strategy and their own list of “wants & needs” as they look for property.  As I always say “there’s no wrong or right in real estate as long as you have a plan”!  You cannot project every scenario in life (as our last couple of years have highlighted), but I do think you have to have a general blueprint for time-lines, financial strategies and goals!!  That coupled with the ability to be flexible and resilient as opportunities, situations and obstacles arise can be a recipe for success!

Let’s start with getting the mortgage for this property.  YIKES!! I have really good credit (why it’s not better, I’ll never understand, as I never miss payments:  PERIOD, END OF STORY).  However, that’s a system better left to the people from “Outer Space” that make and manage those formulas.  I do understand that I’m a challenge to approve for a mortgage on paper.  I’m self-employed (not W-2′ed by an employer) and my income fluctuates BECAUSE I’m self-employed.  However, I have a good track record of investment properties that cash-flow.  I live below my means (i.e:  I save $$$).  I also own multiple properties (it’s an issue with lenders when you own more than four). My mortgage broker went through multiple lending venues to get me qualified.  I always love when they ask me to write a letter explaining why my income was less last year.  The sarcastic side of me wants to reply (in bold):  ”do you have a newspaper?”.

Okay, so getting the mortgage was a challenge; more money had to be included in the down-payment and the interest rate was higher.  Washington Federal was willing to do an asset-based loan.  I ran the numbers (in my sleep sometimes) to conclude that what I perceived to be a really good investment…was still (even with the new set of monetary parameters)! However…get this:  the property appraised for MORE than I was paying.  But, the appraiser only included one side of the duplexes rental income (they’ve been there for 10 years and the rent is WAY under market)  and the other side is VACANT.  Hello, does anyone really think we will leave that side vacant?  So, because of that rental valuation, the only way to could get the loan was to put a lot more money down and a higher interest rate.  I provided my research on market rents for the area but the loan underwriters had their own ideas!!  I understand lending institutions being “gun-shy” but this was “highway robbery” and we wonder why more people don’t get into the investment real estate market!!!

It did close!!  Now what does or what would this do to someone who wasn’t in the business or who had not already had successes with investment property???  You tell me??!!  That buyer would have “run for the hills” (and there were “middle of the night” sessions where I would have been right behind him/her).  I really rely on my gut!  So, I “stayed the course”.   Now I just hope I was right  :-)
PS: thanks for letting me vent. I (sorta) feel better now!