Tag Archive for 'real estate market'

THE BLAME GAME

Published by Janeese Jackson on November 15, 2008 in Close-In Eastside 'hoods, Downtown, Lake Oswego & nearby 'burbs, Northwest Alphabet District, Pearl District, South Waterfront and West Hills. 0 Comments

A client and friend sent me the link to a recent KGW report on the housing market and the ensuing comments.

http://www.kgw.com/news-local/stories/kgw_111108_business_realtors_out_of_business.1a1bbfd4f.html

 

I couldn’t help but notice in the comments how quickly some of the readers wanted to play the blame game and somehow indict “Realtors” as a whole for our present financial crisis.  It is a very tough market out there and only the strong will survive.  There are, of course, some Realtor Estate Brokers AND Mortgage Brokers to blame who may have pressed for people to purchase more than they could afford or loan officers who didn’t fully explain the ramifications of the loans they were encouraging.  But, the majority of Realtors and lenders are just like everyone; very surprised at how bad it got and how fast.  I think our present financial status runs much deeper and is more pervasive than simply blaming either sector.  Perhaps some of the fault lies in our attitudes about money and we may all have to shoulder some of the blame.  Get rich quick schemes have always held a particular fascination to our culture and the apparent “free money” that some people saw in the equity in their homes was obviously irresistible.  I do believe that a lot of our local real estate market stress is as much a function of the financial markets as a whole as they are local real estate values.  However, “fear is fear” and fear is ominous.  The good news is the “less than professional Realtors and Mortgage Brokers” will flee the marketplace and leave a core group of seasoned professionals.

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A GOOD SENSE APPROACH TO THE MARKETPLACE!

Published by Janeese Jackson on October 5, 2008 in Close-In Eastside 'hoods, Downtown, Lake Oswego & nearby 'burbs, Northwest Alphabet District and Pearl District. 0 Comments

So what is the Good Sense approach we need to take now?  Whether your financial portfolio is in stocks, bonds, real estate or cash in your sock drawer (or a combination of all).  The formula is still simple.  Move forward.  Work hard.  Focus on those things that have produced results for you in the past.  Most important … DON’T LET FEAR CONROL YOU !!!  Take action to control panic.  Limit the amount of time you spend listening to the media.  The media will tend to dramatize as that’s how they make money (and, we need media attention to help gain perspective and information on world events, but maybe just not 24/7 “the sky is falling”).   I’m not dismissing this financial crisis as a theatrical production … our country really does have financial issues to work through that will affect us all.  But we’re not going to suddenly fail as a country overnight.  The media reported Monday being the biggest one-day drop in history, which is true, but on a percentage basis it wasn’t even close to Depression-era drops or October 1987.  And, keep in mind lots of money through timely investments can be made during times of financial stress/opportunity!  There is a liquidity problem to be fixed, but we’ll survive even if it takes some time for lawmakers to find the appropriate long-term method.  The blame game is a lose-lose proposition.  Learning from mistakes makes winners.  It’s also easy to join the band-wagon of focusing on not wanting to “bail-out” Wall St companies that, obviously, made some very bad financial decisions.  That was greed, but that was “then”.  I do believe we have to remember the “trickle-down” effect.  It can be easy to try to divide the so-called “haves” from the “have-nots”, but we are all in this together.  If wealthy Americans aren’t spending money, then middle class businesses aren’t making sales and working class families are losing jobs and so on.  No matter how you feel about the bail-out, we have to do something to revitalize credit markets and get money flowing again.  There will not be an economic recovery without a housing recovery.   Now what practical “action” steps can anyone take to protect your personal finances and your income in the short-term?  1)     Control your spending.  2)     Limit unnecessary borrowing.  3)     Pay off credit cards and other high-interest debt.  4)     Save as much as possible out of your paychecks to make sure you have a “rainy day fund”.  Most experts suggest at least 6 months of reserves.5)     Business people and those in sales positions should go back to basics, and evaluate your marketing budgets.  Don’t waste money on empty leads or advertising that doesn’t produce consistent, measurable results.  Only spend on what makes you money and brings in solid business.6)     Embrace the principals of saving and cutting back on discretionary spending until credit cards are paid off.7)     For those with cash reserves and low credit card debt, support small businesses as long as you have excess funds and help keep our local economy strong.  Look for opportunities in stocks, bonds, money market accounts or real estate. 8)      If you are in the market for a home or investment property to round out your portfolio, there are some fantastic buys out there, and interest rates are still near record lows.  Many sellers are willing to negotiate.   In the real estate market, money/credit is available but some of the rules have changed: Here’s a summary of the new wait times if there’s a bankruptcy or foreclosure:1)     Bankruptcy Chapter 7 – 4yrs from discharge date2)     Bankruptcy Chapter 13 – 2yrs from discharge date3)     Multiple Bankruptcy’s – 5yrs from most recent discharge4)     Foreclosure – 4yrs5)     Short Sale or Pre-foreclosure  – 2yrs up to 4yrs depending on investor vehicle6)     Deed-in-Lieu of foreclosure – 4yrs for purchases with 10% down. Now, if there are extenuating circumstances (such as divorce or medical reasons), there can be exceptions to some of the wait terms.  Talk to a reputable lender for more information.   When negotiating a loan modification with your mortgage lender, try this four-step process:1)      Make sure you are dealing with your lender’s loss mitigation department.2)     Write a hardship letter demonstrating job loss, serious medical condition, balloon payment coming due, adjustable rate reset or some other financial calamity that will make it impossible for you to continue making your mortgage payments as scheduled.  Unless you are in imminent danger of default as required by this new law, lenders are not likely to work with you.3)     Send the lender your financial statements, employment records, tax returns and bank statements outlining how you would be able to afford the modified loan terms under your present financial circumstances.4)     Send the lender a current appraisal of your home or some documentation on recent comparable sales in your neighborhood demonstrating the current value of your home.  The key is to show how the lender is likely to recover less money through foreclosure than they would be working with you on your proposed modification plan. If you know someone who is now late on their mortgage as a result of an ARM (adjustable rate mortgage) re-adjusting to higher payment they can’t afford AND they were clean (one 30day late or less in the previous 12mo), then they could be eligible to refinance into an FHA 30yr loan with very good rates/terms.  Basically this is to help ARM victims who were solid borrowers prior to the re-adjustment.  The borrower must meet current FHA loan limits and be able to qualify (full-documentation only) as normal. Conversion of primary residence to rental/investment property (while purchasing a new home):1)     must qualify using both PITI (principal, interest, taxes, insurance) payments 2)     must show 2mo PITI (both homes) in liquid assets (bank accounts, stocks, 401k) if there is 30% equity in the current residence3)     If not 30% equity in current home, the liquid assets must show at least 6mo worth of PITI payments4)     Rental income can be used if minimum 1yr agreement AND proof of 1st payment or deposit into bank account5)     Some lenders/investors will not allow rental income for qualifying unless the client has had at least a year history of being a landlord.  Varies based on programs. Keep the faith….all markets are temporary. 

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IS IT ALWAYS A GOOD TIME TO BUY???

Published by Janeese Jackson on July 4, 2008 in Close-In Eastside 'hoods, Downtown, Lake Oswego & nearby 'burbs, Northwest Alphabet District and Pearl District. 0 Comments

Is it always a good time to buy real estate?  There is, of course, no absolute answer to this question as there are a million stories in the city!  Real estate stats & numbers are useful, but don’t paint the personal picture that we individually may need.  The particulars of any one person’s situation dictates the answer for the moment!  The first question is:  do you have to sell to buy?  It is definitely more of a buyer’s market than we’ve seen in years.  There is actually “negotiation” taking place in our local real estate market.  And, the Portland real estate market, in general, has not been hurt like some other markets.  But, don’t try to convince someone who is trying to sell a condo, for instance, of that fact.  As with a lot of life processes, it’s all about timing.  We can’t rely on general statements about the market without knowing the personal details of the individual’s situation.  It might be a good time to sell & buy, but it depends.  For instance, if you purchased a condo in the last couple of years you most likely do not have enough equity built into your home to be thinking of trying to trade in this market if you don’t have to sell.  The condo & townhouse market is stuggling presently.  Not to worry, the condo market will rejuvenate with time and the right opportunity will surface!  However, if you’ve owned your condo for a while and you can price for the 2008 market, not 2005, then you’re golden.  Detached housing needs to be priced competitively, staged properly and positioned in the marketplace to be perceived, at the very least, as a deal!  Having owned the home long enough to have acquired some equity definitely allows the seller to “price to sell”!   If you are an investor, there are some “steals” and “deals” out there.  If you are a first-time buyer, this is YOUR market!  In my opinion, this is one component that our present market adjustment is all about.  We needed to get the first-time buyer back into marketplace thru affordability and inventory to start the tiered progression of real estate sales!

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LOOKING AT THE REAL ESTATE MARKET IN A DIFFERENT WAY: INVESTING!

Published by Janeese Jackson on May 21, 2008 in Close-In Eastside 'hoods, Downtown, Lake Oswego & nearby 'burbs, Northwest Alphabet District and Pearl District. 0 Comments

Nearly all residential appraisals are based on comparable sales — comps. However, most commercial appraisals rely more on the “income capitalization” approach to valuation. This latter method, applied to residential real estate, casts a lot of light on the market run-up and can help you find the bottom of the bust in your market.The idea with the income-capitalization approach to home valuation is that rents (income), minus expenses and divided by investment (sales price) equals the return on investment (capital). This return on capital is commonly referred to in the industry as the “cap rate” and should be considered analogous to the percentage return you’d receive on other investments like stocks or treasuries. So, for example, a commercial building with a cap rate of 6 percent on a $1 million investment should be expected to generate a return of $60,000 per year.If you look at cap rates for residential real estate over the past few years it isn’t hard to see we’ve had a problem during this time. In my neighborhood, houses that were selling for $850,000 at the peak of the market rent for about $2,000 per month. After deducting property taxes and insurance (assuming zero maintenance and zero vacancy), the cap rate is about 1.5 percent, or a “one and a half cap.” Now let me ask you: How is this a good investment? You might want to answer “appreciation,” but keep in mind that unless rents increase, rising prices only continue to lower the cap rate. Thus appreciation is fundamentally limited by the growth of rents (or how bad of an investment one is willing to make).Looking forward, you can quickly and easily estimate where the bottom might be in your market by taking local rental rates, multiplying by 12, subtracting taxes and insurance, and dividing by a reasonable cap rate. A reasonable cap rate will vary, going as low as 2 percent for a trophy property in a fabulous location to 12 percent or more in high-crime areas.

Top Ten Tax Deductions for Landlords

by Attorney Stephen Fishman

Learn about the many tax deductions available to rental property owners.

Every year, millions of landlords pay more taxes on their rental income than they have to. Why? Because they fail to take advantage of all the tax deductions available for owners of rental property. Rental real estate provides more tax benefits than almost any other investment.

Often, these benefits make the difference between losing money and earning a profit on a rental property. Here are the top ten tax deductions for owners of small residential rental property.

1. Interest

Interest is often a landlord’s single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity.

2. Depreciation

The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

3. Repairs

The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.

4. Local Travel

Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses.

If you drive a car, SUV, van, pickup, or panel truck for your rental activity (as most landlords do), you have two options for deducting your vehicle expenses. You can:

  • deduct your actual expenses (gasoline, upkeep, repairs), or
  • use the standard mileage rate (50.5 cents per mile for 2008; 48.5 cents per mile for 2007). To qualify for the standard mileage rate, you must use the standard mileage method the first year you use a car for your business activity. Moreover, you can’t use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.

5. Long Distance Travel

If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction.

However, IRS auditors closely scrutinize deductions for overnight travel — and many taxpayers get caught claiming these deductions without proper records to back them up. To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long distance travel expenses.

6. Home Office

Provided they meet certain minimal requirements, landlords may deduct their home office expenses from their taxable income. This deduction applies not only to space devoted to office work, but also to a workshop or any other home workspace you use for your rental business. This is true whether you own your home or apartment or are a renter.

For the ins and outs on taking the home office deduction, see Home Business Tax Deductions, by attorney Stephen Fishman (Nolo), or Every Landlord’s Tax Deduction Guide, also by attorney Stephen Fishman (Nolo).

7. Employees and Independent Contractors

Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).

8. Casualty and Theft Losses

If your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called casualty losses. You usually won’t be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.

9. Insurance

You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.

10. Legal and Professional ServicesFinally, you can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.Did You Know?Did you know that:

  • Landlords can greatly increase the depreciation deductions they receive the first few years they own rental property by using segmented depreciation.
  • Careful planning can permit you to deduct, in a single year, the cost of improvements to rental property that you would otherwise have to deduct over 27.5 years.
  • You can rent out a vacation home tax-free, in some cases.
  • Most small landlords can deduct up to $25,000 in rental property losses each year.
  • A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much.
  • People who rent property to their family or friends can lose virtually all of their tax deductions.

  

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Real Estate in 2008!

Published by Janeese Jackson on April 20, 2008 in Close-In Eastside 'hoods, Downtown, Lake Oswego & nearby 'burbs, Northwest Alphabet District and Pearl District. 0 Comments

2008—the Best Year to Buy a Home in 35 Years!??” In April of 1973, mortgage rates were about the same as they are today. Since that time, we have only had mortgage rates this low during 2001 and 2002, the height of the seller’s markets where there was little inventory. In the last two major buyer’s markets, one in the early 1980s and the other in the early 1990s, the rates were much higher. In 1978, interest rates were at 9.75 percent, en route to 18 to 21 percent in 1980. Thus, today’s buyer’s market, with exceptionally low mortgage rates plus a substantial supply of inventory, could be the best time in decades to purchase. There are several different ways that first time buyers lose money by waiting to purchase. The first is loss of tax deductions. In most cases, people who lack a mortgage pay more federal and state income taxes than those who qualify for a mortgage deduction. You can use a mortgage calculator to illustrate this point. For example, assume that a buyer is currently paying $1,500 per month on a rental. If the buyer purchases a $300,000 property with $30,000 down and a fixed-rate 30-year mortgage of $270,000 at 6.25 percent, the buyer actually nets $24,262 more, assuming that appreciation keeps pace with inflation, the buyer owns the property for eight years, and is in the 28 percent bracket. Another way renters lose money is through wealth accumulation, generally in the form of creating equity by paying down the loan and through appreciation. According to the Federal Reserve, the average homeowner between 1995 and 2004 had a net worth of $184,400, of which approximately $60,000 was due to home ownership appreciation. To account for the difference of $60,000 of wealth accumulation, a $200,000 house would have to decline by 30 percent. Thus, each year a buyer waits to purchase a median-priced home, they lose $6,000 in potential wealth accumulation. An additional way that renters lose money is through increased interest rates. For example, on a $200,000 mortgage, assume that interest rates increase from six to seven percent. By waiting, the buyer’s payments increase by $1,578 each year causing a total loss (in payments and wealth accumulation) of $7,578. If interest rates increase from six to eight percent on that same loan, they will pay an extra $3,221 per year resulting in a total loss of $9,221. Our local market is experiencing negotiation that I haven’t seen for years.  I don’t know if it’s truly the “best” year to buy, but it’s certainly a “good” year. 

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