Double Dealing
Last night during the Sunday Night Football between Indy and Baltimore I managed to steal a glance or two at the Sunday Paper. This article entitled The art of the double deal. The first two paragraphs seemed rather interesting:
To real estate investors, a good day is when they can buy a piece of property or sell it. A better day is when they can do both.
Buying and selling the same home before sunset yields a quick profit to the fortunate investor who can work both transactions. It is the stuff of “get rich in real estate” schemes advertised in infomercials.
While the rest of the story is rather mundane.
Rates are really low again
I’ve had severa mortgagel inquiries lately so it probably had something to do with this
National mortgage rates fell sharply last week, with rates on 30-year mortgages dropping to the lowest level in more than two years.
As of today 30 year rates are pretty low:
- One point will get you 5.5%
- Want no points, you’ll get 5.75%
- Want zero points, you’ll get 6.5%
Of course to qualify for these mortgage rates you’ll need superb credit, decent income, an 80% loan balance to property value ratio, and decent assets.
Links: Million Dollar Deals
Million Dollar Deals in Colorado:
Steve Forbes got rid off his:
Trinchera Ranch in the San Luis Valley has changed hands - from a man worth almost $500 million to billionaire hedge fund manager Louis Moore Bacon. Read the full story: Forbes sells Colo. ranch
Bandar bin Sultan decided to keep his:
A Saudi prince who put a $135 million price tag on his Aspen-area estate has taken the property off the market because he got no suitable offers, his attorney and agent said. Read the full story: Saudi prince’s Aspen estate off the market
When real estate is involved, scams will surely follow
First, the real estate part:
A 1031 Exchange, also known as a Like Kind Exchange, is a way of structuring a sale of certain kinds of property so that the seller’s profit or gain is not currently taxed. Instead, the property that is sold is replaced with another “like kind” property. If the transaction is properly structured, the seller’s profit or gain is deferred to a future date.
Section 1031 of the Internal Revenue Code:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
Next, the scam part:
The Internal Revenue Service doesn’t want investors touching their money during a 1031 exchange. Anyone who wants to do this transaction must entrust their money to someone they don’t really know. It can’t be their lawyer, their real estate broker, their lender, or their friend. It has to be a qualified intermediary, according to IRS rules.
There are no actual qualifications to become a qualified intermediary. Sometimes, these qualified intermediaries will take your money and run.
You hand them all the equity in your house, and they blow it on whatever they want. Your 1031 fails, and you then end up owing capital- gains taxes on money that was basically stolen from you. Your only recourse is to sue.
If you love reading about real estate scams then read the full article: Legal tax deal could cost you
The biggest hurdle WAS getting tenants
Investing in real estate is NOT for the weak. There are so many challenges with being a real estate investor. The biggest challenge is usually buying your first property. The biggest hurdle according to most of my friends and clients who have investment properties is getting qualified tenants. You should have no problems getting them rented according to these two stories from the Rocky Mountain News:
Demand for affordable rental housing in the state is being driven by record foreclosures and rising market-rate rents.
Read the full story: Affordable rental vacancies tighten
Statewide vacancies in affordable housing fell during the second quarter, dropping to 4.7 percent, from first quarter in the first quarter, according to a new state report.
Read the full story: Affordable apartment vacancies fall below 5 percent
Foreclosure begets REO
When I think of REO, I rarely think of properties, real estate, or banks. I usually think of the Holiday Inn commercial. You know the one where the guys hum “Take it on the Run” by REO Speedwagon:
REO stands for Real Estate Owned. People inside and outside of the real estate industry believe that foreclosure and an REO purchase are one and the same. They aren’t. A REO property is the direct result of a failed foreclosure sale.
To learn more about REO, visit the REO BLOG.
Study confirms Option Arms not evil
The study comes from NYU and Columbia, two universities known for academia not athletics:
according to a new study by professors from Columbia and New York universities, the “optimal” mortgage in a perfect world is precisely that kind of loan—an adjustable-rate mortgage with an option for negative amortization and a ban (or at least severe restriction) on prepayment.
Read the full article from Business Week
Colorado Foreclosure Act
An article from the Denver Post explores the Colorado Foreclosure Act:
The new law aims to protect homeowners and governs some specific investor actions.
How is the homeowner protected:
Ending such “equity-stripping” abuses was one aim of Senate Bill 71, also known as the Colorado Foreclosure Protection Act as it made its way through the General Assembly in 2006. It became law in January. The practice of equity stripping is now illegal, under the act.
What specific investor actions?
It differentiates between “equity investors,” whose intent may be to purchase the property, and mere consultants who provide help and advice, typically for a fee. Specific standards govern the behavior of each group, with the threat of fines and prison time for violations.
The law says a purchase contract must give the seller three business days to cancel it. It also lays out requirements for a “leaseback,” in which a homeowner sells the property to an investor and stays on as a resident and renter; and for a “buyback,” which gives the seller an option to repurchase the property at a later date.
Read the full article: Foreclosure act: A measure of protection
Black and White is always a grey area
Inman, a leading real estate news outlet, has an article entitled: Mortgage data links higher-priced loans with delinquencies
Blacks and Hispanics were also more likely to be stuck with higher-cost loans than whites. Under HMDA, higher-cost loans are defined as first-lien loans with annual percentage rates that exceed the interest rate on Treasury securities of similar maturities by 3 percent or more. The threshold for junior loans is 5 percent.
These statistics are often misleading. However, Inman does state:
Part of the difference in both denial rates and the incidence of higher-cost loans between ethnic groups can be explained by factors such as property location, income relied on in underwriting, and loan amount, Federal Reserve Board analysts said.
So this really issue isn’t black or white, it’s grey.
Got $135 million?
Mortgage article from the Rocky Mountain News:
It was the most expensive home on the market in the world when it was listed last year. And for $135 million, Prince Bandar bin Sultan’s 95-acre spread and 56,000-square foot mansion can be yours.
With the credit crunch lenders aren’t exactly lining up to mortgage this property.
Read the full story: For sale: Aspen ranch fit for a prince, only $135 million