Investing Wisely in an Economic Downturn

If you’re in a position to invest in today’s real estate market, you may be able to take advantage of some once-in-a-lifetime deals. All investment comes with risk, however, and this is no time to ignore warning signs of deals that can sour quickly. Keep these guidelines in mind when considering your potential investments:

Rise above the times. Investors who are able to navigate tough times such as these and still come out ahead are in the best position for long-term success due to a consistently strong track record.

Do your homework. If you’re selling, be sure to pre-qualify buyers to avoid a deal falling through because of inadequate financing.  Avoid unpleasant surprises by knowing exactly who and what you’re dealing with—spend the necessary time and energy to perform thorough due diligence.

Seek out alternative and flexible lending. Cash is always most desirable and gives you the greatest negotiation leverage.  If possible, generate private money and financing solutions in order to avoid traditional, now stricter, lending.

Don’t settle.  In a buyer’s market, savvy investors are wise to generate as many prospects as possible and select from among the best.  Establish criteria for your goals and don’t compromise. If a real estate deal doesn’t meet your standards, move on to the next one.

Plan your exit strategy and have more than one. Contingency planning and multiple exit plans are essential to mitigating risk. Always have more than one backup plan, and be ready for worst case scenarios.  Ample equity and cash flow are essential.

30-Year Fixed Rate: the Number Everybody is Watching

At a time when the housing market is struggling to recover, the slightest mortgage rate adjustment is scrutinized since even a minor rise stands to lessen the buying power of borrowers. In the most basic of terms, lower interest rates afford buyers more house for their money.  Additionally, higher interest rates typically cause home prices to fall.

In the last report of 2009 by Mortgage-industry giant Freddie Mac, the rate on a 30-year fixed loan rose to 5.14 percent, up from recent lows below 5 percent.  The report also revealed a higher cost of adjustable-rate home loans. This rise is consistent with predictions that the 30-year fixed rate will reach 6 percent in 2010. While still low by historical standards, this is a change that affects the delicate state of the housing market which is inextricably linked to the overall economic recovery.

Tax incentives for first-time buyers and low interest rates are the two factors that have most influenced the recent welcomed increase in housing demand. However, the tax breaks are scheduled to end by mid-2010 and the Fed plans to stop buying mortgage bonds in the first quarter. This will stop the flow of money into the market for housing finance, and may constrict available credit.

Along with interest rates, lending standards are a key factor of housing market recovery. The two go hand in hand since borrowers can only take advantage of low interest rates if they get approved for a loan. With high foreclosure rates expected in the new year, banks and regulators are guarding against the risk of bad loans.

The Year in Real Estate

As many analysts predicted, the foreclosure trend that began in 2008 worsened sharply in 2009. Despite substantial government bailout, 2009 brought with it some of the highest residential foreclosure rates in history. While existing home prices followed foreclosures and fell dramatically, sales did bounce back slightly, due, in part, to the first time home buyer tax credit.  Leveraging the tax credit incentive, builders lowered prices to offload excess inventory which helped new home sales to improve.

So, what can we expect in 2010? Here’s a recap of some of the agreed-upon predictions:

• The decline of the residential housing market isn’t over. It will probably dip again mid-year before entering into a true recovery in the second half of 2010.
• Government incentive and assistance programs scheduled to end in the spring will slow home sales.
• Rising foreclosures, linked closely to high unemployment, will result in excess inventory and will continue to negatively influence home prices.
• 30-year fixed mortgage rates will begin to rise from historic lows and level off in the 6 percent range.
• Low vacancy, rock bottom rent, and high default rates will continue to plague commercial real estate for the foreseeable future.

With such gloomy predictions, it’s important to keep in mind that trends aside, the real estate market is still alive. People are still selling, and people are still buying. If you are in a position to take advantage of this buyer’s market, consult a local realtor to discuss your strategic options.

Real Estate Report for 2009

Now that 2009 is behind us and we are on to 2010 I want to summarize what transpired in the Sarasota County real estate market the past year. There were a total of 8,084 properties sold the past year with 5,640 being single family homes and 2,444 being a condominium. The following table summarizes what happened in each price segment. All statistics are as of the end of 2009.

70% of 2009’s sales were single family homes and 30% were condominiums. Of the total sales, 73% were properties that sold for $250,000 or less, 18% were sold for between $250,000 and $500,000, 6% sold for between $500,000 and $1,000,000 and 3% sold for over $1,000,000.

As the statistics relate to listed properties at year end we have 10.1 months of inventory overall. There is only 8 months of inventory for properties listed under $500,000, in the price bracket of $500,000 to $1,000,000 there is 23.4 months of inventory and over $1,000,000 there is 46 months of inventory. In general six months of inventory is considered a neutral market meaning neither a buyers or sellers market.

Obviously the first time home buyer tax incentives coupled with low interest rates has had a wonderful effect in lowering inventory for homes listed under $500,000. Here’s to hoping that buyers begin to realize home prices have bottomed out and we start to reduce the inventory of luxury homes. 2010 here we come.

Making Your New Apartment ‘Home’

You’ve probably already called the cable guy and arranged for your utilities to get hooked up before move-in day, but here are a few things that will help you settle into your new digs that you might not have thought of:

• Change the locks. Safety first. Check with your landlord about providing him or her with a new key, but don’t risk an old tenant dropping by uninvited.

• Consider your electrical needs. Lamps, stereos, televisions, game systems, and DVD players tend to fight for outlet space. Plan ahead for what will need to go where and make sure you have the proper outlet configurations.

• Check for unwanted guests (like rodents and bugs). If they’re not paying rent, they’ve got no business in your apartment. Call an exterminator before you move your things in and schedule maintenance visits as necessary.

• Plan a cleaning day. Hopefully, your landlord has already given your apartment a good cleaning, but most people like the security of knowing that something is really clean before using it—especially the bathroom, kitchen, and floors. If possible, plan a cleaning day before your move-in date so you don’t have to shuffle things around.

• Clean and disinfect the fridge. While you’re cleaning, take this opportunity to remove spills, food residue, and odors from your refrigerator before you stock it.

• Change the toilet seat: Speaking of clean, this is one area you don’t want to make any assumptions about. For under $20, you can get a factory-fresh commode topper. We highly recommend it!

• Make it your own. You’re starting with open floors and bare walls. Take advantage of this time to imagine the perfect living space and create it!

Two more sources for information:

Real Estate agents – Worldwide real estate companies directory and property buyers and sellers guide.

Real Estate Blogs Directory – Directory of real estate blogs and blogs of industries affiliated with and
serving the real estate industry.