For a while now I have been using our own title company when my customers are purchasing foreclosed properties.  This is all despite the contracts “requiring” that we use their title company, which is against the law.  Here is a great email that Charity at Trademark sent out:

Associates,

In the last couple of weeks it has been brought to my attention that the title companies representing the banks have taken it a step further now. They are not just trying to fairly compete for the buyers business they are actually calling the selling agent and using scare tactics on them.

Most recently, the title company called a Selling agent telling her that the Buyer HAS NO CHOICE and must use them to close because the contract was written that way.  PLEASE do not allow these title companies to bully you or your buyers into closing with them, THIS IS AGAINST MINNESOTA LAW!

Another instance, the same title company as above called the Selling agent and told him the Buyers would end up paying $900 more to close with Trademark than with them. NOT TRUE!  We offer special pricing for buyers of bank owned properties.

Last week a very reputable title company who has now started representing banks sent us multiple emails stating the Bank won’t send the deed back unless the Buyer uses this title company. Again, THIS IS AGAINST MINNESOTA LAW!

Please, don’t be fooled by the latest tactics, if in doubt CALL A TRADEMARK CLOSER!

Real estate business is a highly specialized field that has its own set of terminologies. People who are not interested in purchasing or selling properties may not be aware of the terminology. One such term is private mortgage insurance (PMI). This insurance provides protection to the lender against non-payment in case the borrower defaults on a home loan.

How does PMI help lenders?

The main benefactor of private mortgage insurance is the lender. Borrowers have to purchase PMI when they are unable to make the required down payment. A borrower does not get the freedom to shop around and purchase this insurance. It is their lenders who will choose the insurance provider for the borrower. PMI enable lenders to offer home loans even with low down payments as it protects them against loss in case borrowers default on the mortgages. Though the lender becomes the beneficiary, the borrowers pay the premiums.

How does PMI help borrowers?

To purchase a house with a conventional home loan, borrowers will have to put down 20% of the purchase price of the property. If they do not have sufficient funds to make the required down payment, they can still purchase the house by obtaining private mortgage insurance. So, with the help of PMI, borrowers do not have to wait for years to accumulate the required down payment for fulfilling their dreams.

How much does PMI cost?

The cost of private mortgage insurance depends on the size of the home loan and the amount that borrower make as down payment. Typically, the cost of the insurance is about half of 1% of the home loan. Borrowers generally have to be pay the premiums on a monthly basis, included in the home loan payment. Private mortgage insurance is very lucrative for lenders and so they are often reluctant to end it on time. Hence, the Homeowners Protection Act (HPA) of 1998 was enacted to automatically terminate PMI when borrowers attain 22 % home equity and also gives the right to borrowers to request lenders for its cancellation when they reach 20% equity in home.

I am sure with that headline and what I am about to say will get me some hate e-mail, but I just tell like I see it (even if it is not 100% politically correct or polite). So I stopped by one of my units in Northeast Minneapolis this weekend to find that the tenant moved out in the middle of the night, owing me May rent.  Nice!  On top of that they left a couple pieces of furniture in the house, 2 beds in the yard, and no cleaning (surprise).  How did this happen to me again?

As I was having a little pity party in my unit, I had an epiphany.  This tenant had some telltale signs that I should have picked up on when I showed her the unit the first time.  While none of these are 100% reliable and I am sure there are many exceptions, and while I am sure I will get hate mail for saying some of these things, just chalk this up to my gut feeling and experience over the years.  Here are some correlations that I have noticed with bad tenants:

• One of my big pet peeves is seeing window screens pushed out or damaged on rental properties.  I don’t think I have ever wrecked a screen at my house.  I see tenants push them out all the time.  In fact I had a tenant last summer simply push the window air conditioner through the screen instead of removing it!  Bad tenants seem to treat the screens on the house like the treat the rest of the house.  They abuse it.  By stopping by and checking out their current living situation, you should be able to notice this.
• When you are running the tenant’s application, if there are any credit issues, collection items, or evictions, that is going to continue to be a problem.  Now I understand if you got laid off, went through a divorce, got sick and had a period in your life well that is explainable, but most bad tenants just seem to have no regard for payment of bills.  Just like any bad habit, once they get used to doing it often, it gets easy.

While I could go on and on, these are some quick thoughts that come to mind (and help me vent my frustrations).

Jakob Austin from the UK writes our guest post today about different types of financing.  This is very similar to our Rehab Financing that we use.

If deposits aren’t available as ready cash it is advisable to be able to borrow it. Bridging is of two types open bridging and closed bridging. In open bridging, lenders don’t know when the money will be repaid while in closed bridging they know it.

Closed Bridging or Deposit Bridging

It is offered as a secured short-term loan against any residential property. It requires Market Value lending where  investment doesn’t come from a vendor but a third party. Deposit bridging, works well for individual resale properties. If the incentives are high enough it can result in a No Money Down investment but it is usually a Low Money Down.

Same Day Bridge and Refinance

Mortgage Express allows investors to buy a property at a net price, using short term bridging finance (24 hours). The investor immediately re-mortgage the property, based on the market valuation. It was an excellent product but has been withdrawn recently. You can still use the bridge and re-mortgage (http://en.wikipedia.org/wiki/Remortgage) system, but have to wait for 6-12 months to do the re-mortgage.

Open Bridging

In this Short and Medium Term Techniques are used for Low and No Money Down. Lenders fund short term finance up to 12 months. They will lend up to 70% of Open Market Value. Many lenders restrict the maximum borrowing to 85% of the cost, no matter what the open market value and the purchase price is. However if you pledge another property, you can borrow up to 100% including all costs. This would result in a true No Money Down deal.

Open Bridging is suitable for investment property with large discounts, new build and re-sales, auction property and distressed sales. However open bridging isn’t advisable as the cost of open bridging is high, obtaining discounts is difficult and the investor cannot commit on a mortgage 6-12 months ahead.

There are many sourcing companies in UK which advise investors on deposit bridging. Axis Property Investment (http://www.axispropertyinvestment.com/) is one of them and has built expertise over this domain. To know more about deposit bridging and other investment methods visit  http://www.axispropertyinvestment.com/learn.html.

Summary: Deposit Bridging is becoming an integral part in a No Money Down investment. There are two types of bridging Open Bridging and Close Bridging.

I love working with investors.  Maybe one of my favorite parts of my job is seeing people take properties that were previously run down, neglected, ugly (and sometimes almost destroyed), and bring them back to life and restore them to their beauty.  This Saint Paul home is no exception.

Downstairs this duplex had no kitchen left and someone had tried to combine two of the three bedrooms to make a larger master suite (removing the hardwood floors in the process).  The upstairs tenants had destroyed the bathroom and the property did not have a working heating system.  Once my investor purchased it, they found that the entire plumbing system was incorrect installed.

Needless to say, they spent considerable time and money to restore this 1928 Crocus Hill duplex back to its original glory.  I love it (I was tempted to tell my wife to start packing as we are moving in!).  Here is just a partial list of the work they did:

• New kitchens including cabinets, counter tops, appliances, and tile floors
• New bathrooms with all new plumbing and tile throughout
• Refinished hardwood floors and restored woodwork
• New Bryant furnaces in each unit
• Upgraded plumbing (both waste and supply) including 2 new water heaters

Each unit is 3 bedrooms and 1 bath.  This property will work for either an investor or an owner occupant.  The seller is very comfortable that you could rent either apartment for $1250 per month each.

Check out the website for 728 Dayton Avenue.

According to the Metropolitan Foreclosure Report by RealtyTrac, Inc, the Twin Cities real estate market saw an increase of new foreclosures filings by 22%.  This is a 2% decline actually from the last quarter of 2009.

Before you investors start salivating….Keep in mind that even though a foreclosure filing happens on a property, several things can happen.  The owner can pay the past due amount and fix the problem.  They can sell it in a short sale.  If neither of those happen, we need to wait 6 months for the end of the redemption period for the properties to hit the market.

The staggering numbers from the report show that one in every 162 houses in the Twin Cities (only .62%) has at least one foreclosure filing in the database.  This is slightly lower than the .72% national average.  The Twin Cities ranked 80th on the list of large cities (over 200k people) in number of foreclosures.  Of the top 10 cities with the worst foreclosure rates (like cities in California, Florida, Arizona), eight of them reported improvement in foreclosure filings over last year.

From the Minneapolis Realtor Association Newsletter-4/19/10

For the third consecutive month, home prices in the Twin Cities 13-county metropolitan area showed a year-over-year increase. We haven’t seen three consecutive months of progressively increasing year-over-year growth since June 2004.

The March median sales price of $165,000 was a healthy 7.1 percent increase from $154,125 last March. That’s the strongest year-over-year increase since May 2005. Part of the reason for the stronger upward movement is that a lower share of home sales are foreclosures as compared to last March. Short sales are another story.

“There are definitely some promising indicators and several positive trends at this time,” said Brad Fisher, President of the Minneapolis Area Association of REALTORS® (MAAR). “However, we need to keep a close eye on several submarkets, including short sales, new construction, and high-end properties.”

The median sales price of traditional homes (excluding foreclosures and short sales) in March was $199,900, down $11,600 or 5.5 percent from $211,500 last March.

Foreclosures posted a slight 0.3 percent increase to $118,000, while short sale properties posted a 2.0 percent decline to $147,000. Although short sales have become the new problem child on the block, the 10.0 percent decline in bank-owned new listings after a period of unprecedented growth is good news for everyone.

There were 5,051 signed purchase agreements in March, an increase of 14.6 percent from a year ago. The spring market continues to have a flurry of activity as we approach the April 30 deadline for the federal home buyer tax credit. Home sales are expected to continue to increase as buyers move to take advantage of this substantial market incentive.

This increased buyer activity has brought inventory down and restored some sense of equilibrium to the market. April’s supply-demand ratio of 4.39 means that there are 4.39 homes available per buyer for the month. In March 2008, that mark was 8.16. While the rate of inventory decline has been slowing in recent months, supply and demand is far more balanced than it was two years ago. This is a critical sign that the market is correcting oversupply.

“The oversupply issue has corrected in much of our market, and that has led to price stabilization,” said MAAR President-Elect, Pat Paulson. “This provides reason for cautious optimism.”

When I meet with new investors, this is often a major part of the discussion.  Who is going to manage the property?  Are you going to collect rent, but have someone else do the maintenance. Alternatively, maybe you see this as a hobby and want to do all the maintenance.  Other investors see this as a passive investment and are not interested in even knowing the names of their tenants.

Chris Thorman wrote a long post of many things to think about when you are considering using a property management company.  Go over and take a read at software advice.

Fiserv, a global financial data research firm released an article on April 8, 2010 detailing the home pricing trend and forecasts for 375 US housing markets.  The data comes from both Moodys.com and the federal government.  The report states that markets such as California, Arizona, Florida, and Nevada that saw the largest price run-ups (and subsequently the largest bubble crash), may not see the prices of their properties return to peak levels (prices around 2006-7) until 2025 or later.

Many other markets, including Minnesota, may need to wait 10 years or more to see their prices return.  They specifically mentioned Minneapolis in a part of their analysis:

“A protracted recovery in home prices is also expected in many urban neighborhoods where predatory lending was most rampant. There, home prices rose rapidly from very low levels during the bubble years. These markets include neighborhoods in cities such as Minneapolis, Memphis and Chicago.” 

The full members only report summarizes that the Twin Cities market could be back to their peak prices between 2015 and 2025.

Despite other experts stating that prices will decline only slightly this year in the Twin Cities, the Fiserv report says that nationally, prices will decline by about 7% through the end of 2010 and then begin a slow, flat recovery in 2011.  They emphasize that this recovery will be prolonged, meaning that many markets will see multiple years of 0% price growth.

On a positive note, some areas are more fortunate such as Pittsburg, Columbia (South Carolina), parts of Texas, Washington, and upstate New York.  These areas never had the dramatic price increases and consequently will see their prices recovery relatively quickly; possibly within the next couple years.

While the foreclosures are the details of the housing market making the headlines in the news, much of the lack of momentum in the housing prices is driven by the overall state of the economy.  With consumer confidence about their jobs and economy at such a low point, many people are unwilling or unable to purchase a new home, despite the great opportunities out there now.  This has reduced demand especially in markets that lost jobs, where employment is not expected to return to peak levels for 5-10 years.

I am human.  I make mistakes.  Sometimes I don’t even take my own advice.  This time I was desperate/frustrated/annoyed that I could not rent out a great 1 bedroom apartment that we just renovated with new windows, redone hardwood floors, new kitchen and bathroom.  I was renting it for $725 per month and then dropped it to $695 per month with a couple showings, but no applicants.

Finally a guy shows up with his pregnant girlfriend.  Very well spoken.  He is a contractor and made decent money.  She had a full time job.  Things were looking good.  Until he tells me he has 2 pit bulls.  I knew that I knew I should never take this guy.  But it was coming to the end of the month and I was going to lose another month’s worth of rent, so after he convinced me they would be OK and not a problem, I agreed.

That decision bit me in the ass, (figuratively).  The dogs were very aggressive to anyone in the yard.  They tore up the grass and even cornered a neighbor lady and wouldn’t let her move until the tenant called them off.  The final straw is when the neighbor saw the tenant hit the dog with a shovel in the head when it was barking.  Now I have animal control calling and wanting to get a warrant to break down the apartment door to take the dogs.  Multiple trips to the apartment later, the dogs are mysteriously gone when animal control shows up.

Repeat after me: never, never, never take aggressive dogs.    No matter how sweet the owner says they are, these dogs were bread for their aggressiveness, it is tough to train this out.  I have nothing against the dogs, but they are by their nature aggressive.  This is no different than trying to teach a pet alligator not to bite.  By the way, if a tenant ever says they have a American Staffordshire Terrier, that is simply another name for a pit bull.