Flipping in this market? Are you serious?

I can't believe the amount of talk I hear and read about concerning flipping homes as an investment strategy....

Listen people -

FLIPPING IS A BIG PART OF WHAT GOT US IN THE MESS WE ARE CURRENTLY IN.

Never mind the fact that inventory levels far exceed standards needed to make flipping a viable option.

THERE IS TO MUCH COMPETITION AT THIS TIME TO MAKE A FLIP A SMART REAL ESTATE DECISION

Be wary of offers to place your money in a "No Brainer" investment opportunity. And for g*d sakes....

FACTOR IN ALL OF YOUR PRESENT AND FUTURE COSTS BEFORE DOING ANYTHING IN REAL ESTATE!!!!

Closing costs on a standard Real Estate transaction are approximately 8.5% on seller side.


Take this example:

Broker finds you a "can't miss" deal... home is listed at $100,000 - it needs work, but I "promise" with only $20,000 in repairs I can sell it for $200,000.... "you'll make $80,000!!"

Now let's break it down...

the home that costs $100,000 actually costs closer to $110,000 after closing and pre-paids... did you forget taxes, pre-paid insurance, general closing costs, etc? I guess your broker did.

So now your $100K home cost you $110,000

Now it's time for repairs.... what's the chance your broker estimated the repairs correctly? Is he a contractor? Did he inspect the home inside and out? Are you aware of ALL repairs that need to be made? Probably not....so let's be easy on it and bump the $20,000 to.....$30,0000 - fair enough?

So now your $100,000 home is a $140,000 home....

But OK, it's fixed up now and looks GREAT - let's sell it and make some $!!!!

Average days on market for a home in today's market is 5 months - that's 5 mortgage payments - add it up. I'll be nice and call it $3000 - though we all know it will exceed that - but we're just spit balling here, so $3000.....

Current cost of your $100,000 home? $143,000

Wait a minute....the phone's ringing!!! It's your broker, he has an offer!!!

It's for $190,000 - not what we expected, but it's been 5 months and by the time this closes it will have been 6 months, and your stressed - you want your $ and decide to "just get out".

You take the offer - but wait, what's this? The buyer wants you to contribute 3% towards their closing costs? That's close to $6000!!! But it's the best (and only) offer you've seen. You take it..

Yea!!! Closing day is here!! Time to cash in!!!

We goin' Sizzlaaaa.....

So you're at the closing table - how much did you make on this great, can't miss deal?

Sales Commission is 6% - $11,400
Contribution to buyer is 3% - $5,700
Closing costs are 2% $3,800

That's $20,900 - JUST TO SELL!!!!

So what's your net on this "can't miss" deal that was going to net you $80,000??


$26,100..............

DO YOUR DUE DILIGENCE PEOPLE!!!
IF YOU DON'T KNOW HOW, SIMPLY FIND THE RIGHT PEOPLE TO WORK WITH

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Palm Beach County's property values may drop 12 percent

Budget cuts likely, tax increases possible

By Andy Reid |South Florida Sun-Sentinel

April 28, 2009

New economic estimates show Palm Beach County's property values dropping 12 percent, likely triggering budget shortfalls for local governments and potential tax increases for residents in the coming year.

Property Appraiser Gary Nikolits Monday released updated estimates for just how much the struggling economy will affect the bottom line on Palm Beach County's taxable property values. While 12 percent was actually an improvement over the estimated 15 to 17 percent decrease Nikolits warned of in March, it could still leave the county facing its biggest drop since the Great Depression-era declines, he said.

Earlier this year, local governments were counting on just a 5 percent decline in property values.

Even during past recessions, the county usually held strong or saw slight declines, Nikolits said. "It's pretty bad," Nikolits said. "Palm Beach County has always been a growth county."

Nikolits estimates the county's 2009 taxable property value will be about $135 billion, about 12 percent less than the previous year. That doesn't include new construction, which gets added in this summer.

Estimated values for cities within the county showed declines ranging from 2 percent to 21 percent, according to the property appraiser's office.

Boca Raton's taxable property values would go down about 9 percent, to $17 billion. Delray Beach would drop about 13 percent to just below $7 billion and projections show Boynton Beach values declining 16 percent, to about $4 billion.

County commissioners are considering their first property tax rate increase in 10 years to cover a budget shortfall that could reach $130 million.

One budget scenario being considered is an almost 8 percent property tax rate increase, where the current rate of $3.78 per $1,000 of taxable value would go up to $4.07 per $1,000 of taxable value. If approved, that would mean a $246,000 home, eligible for a $50,000 homestead exemption, would pay about $798 a year, up from $741, for the taxes levied by county commissioners. That doesn't include taxes for schools, cities and other government agencies.

The county is considering laying off 100 to 200 employees to help cut costs, County Administrator Bob Weisman said. This will be the third year in a row that the county has seen its revenues drop, Weisman said.

The county has a $4 billion budget and about 6,000 employees. Updated property value estimates are due from Nikolits in June and July. Commissioners must approve a budget by the end of September.

State budget cuts take even more money from local governments at a time when some services are needed the most, Commissioner Jeff Koons said.

"The state tax structure is pitiful and they are not going to fix it," Koons said. "This is going to be the hardest budget we have faced in Palm Beach County in 25 years."

The coming budget squeeze wouldn't be so bad if local governments had done a better job of limiting spending during the building boom years, when tax revenues kept going up, Nikolits said.

"In those good years ... they created new programs. They bought property," Nikolits said. "That's a continuing expense."

Just give the home back to the bank? Is this fair?

What do you think?

Please comment below

Is the Bear Waking Up? South Florida Real Estate Market may be on the rise?

Is change on the way?

There seems to have been a resurgence in the market these past few weeks. Not only is buyer activity on the rise, but it has become apparent that seller "reality" is starting to set in. I have noticed some remarkable price reductions in current inventory in the past 14 days. Sellers are becoming more realistic with their goals and are pricing accordingly.

What does this mean for the market?

I hope it means change..... It's been a while since I have just lost out on a home because it recently went under contract. It's been even longer since I was in a bidding war on a particular property. These occurrences however are rapidly becoming the norm on properties which are priced right. If sellers continue this trend of fair market pricing, and I hope they do, we can expect to see a reawakening of activity in the upcoming months. With the right homes priced right, we just may be able to reduce inventory levels and get the Real Estate market back on track.

What can I do to prosper from this?

The best advice I can give to investors at this time is to begin cherry picking properties. Sellers are more motivated then ever to sell at fair market value, they are tired and beat down by this market and finally just want to get out. It's been a buyers market for quite some time, but only the buyers knew it! Know the sellers do as well and are acting accordingly. Spend some time locating that perfect opportunity and don't be afraid to use short sale comps to obtain the home at a fair price. We need to remember that all of these "standard" sellers are competing with short sale pricing, and unlike 6 months ago these short sales are actually closing!! Use their reduced sales figures to obtain cherry properties at cherry pit prices!!!

Occupying your investment property in a timely and profitable manner

To maintain a positive ROI on any investment purchase you have to have tenants, right?

RIGHT.

However, I often see many investors going about this process the wrong way! I am constantly hearing the stress and aggravation of landlords whom can't get their property rented in a timely OR profitable manner. Stress kicks in, Buyers remorse is next, and the drinking ensues (joking).

What can we do to be sure that our new investment becomes occupied at a desirable rate with just as desirable tenants?

Become your own rental agent!!

As a Realtor I am sure i will get burned for stating this, but the MLS is NOT the way to rent your property in these times! To do so requires the added expense of 10% of your gross lease net. Doesn't it make sense to first of all save that amount, and secondly to pass on those savings? If you are going to give up that 10% to an agent, give it straight to your tenant!! No, I don't mean hand them a wad of cash for signing a lease, just require less of a deposit for them to move in - isn't that a motivator to choose your property over your competitions?

Do your research before you buy!!

If this doesn't sound like the most logical advice I can give...... But it's true and often forgotten. DO NOT and I have to repeat - DO NOT buy an investment rental property without figuring out what your lowest rental income will be. Forget the greed and how much you could charge, how much can you get? Do your work and find out first of all what current tenants in comparable units are paying, and secondly what comparable units are asking. Will the lowest amount you can expect still make your ROI high? If not, move on.

Don't get bogged down with Credit Apps & Referrals

Everyone deserves a second chance right? Just because a prospect has bad credit or can't provide adequate references does not make him/her a bad tenant. Yes, the percentage of default is higher, but I've also seen people with 760 credit scores go into foreclousre, we all have by now. This may sound lacksidasical or imprudent, but GO WITH YOUR GUT. You need to judge your prospective tenants by yourself, what feeling do you get from them? If it feels right, go for it. There are no guarentees in life, we sometimes have to take a chance on the underdog, when the odds are against us however they can pay off in spades! (wanna go to the track?)

Keep your tenants happy

Again, seems obvious but this is also often forgotten. A happy tenant is a paying tenant as well as a courteous tenant. Remember the days of highschool parties? If you were friends with the homeowner didn't you look after the house during the ruckus? If however you were in a "strangers" home, spilled beer here, dent in a wall there, whatever.... not my house. Tenants have the same mindset, if they like you and understand that you repect them they will treat your home as it is theirs and the payoff for this is priceless!!


For more tips, advice or ideas on occupying a rental property to the best or your ability visit us at:

SFLA Investments


or write us direct at info@sflainvestments.com


To your wealth

- Rick

Investing in Short Sales vs. New Construction

Short Sales SUCK!!

All the chatter about short sales is really wearing thin on me. Can they be a great deal? Of course. Are they the best way to invest in this market? NO.

As most of you probably know already, "short" is the worst way to describe these sales. The process is long and tedious, often drawn out for months on end. While the deal may be worth the wait monetarily, you need to be aware of the other pending issues that may and will arise during this drawn out time frame. As we know by now, short sales happen when a homeowner can no longer afford their home and need to sell below fair market value. Now ask yourself this, if the homeowner can't pay the mortgage do you think they will continue to maintain the house to the best of their ability? Of course not. Landscaping goes first, then common problems become ignored, the electricity gets turned off - no A/C breeds mold, the pool turns to a green sludge filled nightmare, the home begins to smell and termites and bugs start to move in by the thousands. All while you are waiting for the bank to get back to you with an acceptance or denial of your offer. By the time the bank does respond, the home is worth about 5-10% less then you offered at original contract. So, you tell me.... are short sales the way to go?

In reality, they can be a great investment if done right, but they should not be your main focus in this market. What should be?

New Construction!!

With the economy in the state it is currently in builders are scrambling to sell out their remaining inventory. Now keep in mind that these builders pretty much have carte blanche as to what terms they can accept. There is no wait for third party approval of your offer and many builders original lenders will actually finance you at lower then average rates just to get you in the door!

Let's also keep in mind that you are now working with new product, not just new but BRAND NEW. The builder will also often offer a warranty on the home and all appliances. That alone cuts future costs!

There is also a strong point to be made that many of the past sales in these communities have closed at much higher levels then you will be paying. Instant Equity no longer exists monetarily but in essence that is what you are receiving with many of these purchases, and for a long term hold what's better then that?

New construction units are also much easier to rent. The grounds are beautiful, the interior is brand new, and in return you can demand a stronger rental rate.


Short sales can work, they will not disappear and may offer strong returns, but in today's current market there is nothing better then snagging a new construction unit at rock bottom price.

For more information be sure to visit http://www.sflainvestments.com/

To your wealth,

Rick

Long term holds vs. Flipping

This economy has set new "guidelines" in terms of Real Estate Investing. Long gone are the days of the two week flip, the assignable contract or the instant Millionaire wholesaler. Let's not forget however that these occurrences are a large factor to what has put us in this sinking ship.

We need to get our heads wrapped around the long term hold. FLIPPING homes is out like polyester. The long term hold is in like Flynn!! Just look at the S&P - falling at dramatic rates, 401(k)'s dwindling at a record pace, retirement accounts telling you to get back to work!! THIS IS THE TIME TO BUY AND HOLD SELF SUSTAINING REAL ESTATE!!

Buy Low Sell High

I've typed those words often on this blog but will continue to do so until it really sets in. Now is the time to make your move!! This is the time to purchase residential, income producing Real Estate at amazing values!! AND GET THIS!! It doesn't have to be a short sale or foreclosure!! It can actually be new construction! With the economy in the crapper, deals are everywhere!! Builders need to sell their inventory, they are almost "forced" to take losses to appease the funding bank. We just closed on a new construction property (3/2.5 two story townhouse) at a record low price, actually 45% less then previous '08 sales of the same unit!! Now if this isn't buying low, I don't know what is.

Here's the Beauty

Ok, so buying low is great....we get it... blah blah blah... But the economy is tough Rick, my funds are down, the country is in a recession, and my stocks aren't worth the paper they are printed on.

Well here sir/ma'am is the beauty..... These units rent for your hold costs!! Not only are you saving the 40-50% off standard purchase price, but the unit is now paying for itself!! Your net rental income actually pays for all your expenses. Yes, ALL. Taxes, HOA, Insurance, even incidentals.

Now get this!! Your ROI appreciation rate will be close to triple that of your neighbors! As long as they don't lose money, all you can do is gain! With 40-50% already built in as "instant equity" there is no where to go but up. While the economy resets (and it will take a while) your self sustaining property grows money! And it costs you NOTHING!!

Listen people, we are at the bottom. The market has bottomed out due to the bailout. It needs time to reset, are you going to wait for the reset to make a move? If you do there is no point at that time. NOW IS THE TIME TO BUY/HOLD/PROFIT...

It will take years to see a market like this again, do NOT let it pass you by.

-RICK
Be sure to click the SFLA Investments link to your right for more info on what I do and how I do it.