Senator Proposes Legislation for $15K Tax Credit for All Buyer with NO Income Limitations

On June 10th, Johnny Isakson, a Senator for the State of Georgia, introduced legislation that would give ALL buyers a $15k tax credit with NO income limitations. Senator Isakson was cited as follows:

"The first-time homebuyer tax credit has made a difference. First-time home buyers used it and the market stabilized, but we don't have a recession in first-time home buyers. We have a recession in the move-up market," Isakson said. "One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can." --Sen. Isakson--

Read full press release, here.

The passing of this legilation will go a long way to stimulate the recovery of this ailing economy. I hope this one passes!

FHA/HUD Rescinds Tax Credit Monetization

I just received word today from Kimberly Kahl, the Executive Director for the National Association of Exclusive Buyer Agents that HUD has rescinded the monetization of the First Time Homebuyer Tax Credit.

From Kimberly's email today:


"According to contacts with both FHA and HUD, Mortgagee Letter 2009-15, which stated that first-time homebuyers would be allowed to use the tax credit for their downpayment, has been rescinded. On a phone call with FHA, I was told, "The mortgagee letter has been rescinded for the time being.” NAEBA President John Sullivan was told something similar when contacting HUD. Neither FHA nor HUD gave further details. If we hear anything further, we will let you know." --Kimberly Kahl, CAE --NAEBA Executive Director--


So close and yet so far! I hope HUD reconsiders. This was a great idea that could have helped many first time homebuyers.

FHA Close to Monetizing First Time Homebuyer Tax Credit!

In a video news report by Frank Garay and Brian Stevens of ThinkBigWorkSmall.com, they reported the news that HUD is getting close to allowing the monetization of the First Time Homebuyer Tax Credit. In his prepared remarks, Secretary of HUD, Shaun Donovan, cited an estimate by the National Association of Home Builders that this new tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

When FHA allows the monetization of the new tax credit, this means that HUD will allow FHA-approved lenders, HUD-approved non-profits, as well as state and local governmental entities to "monetize" the tax credit through short term bridge loans. In short, the tax credit can become part of a homebuyers' down payment!

New Code: Home Valuation Compliance Code (HVCC)

The mortgage industry has been buzzing ever since the new Home Valuation Compliance Code (HVCC) went into effect on May 1st 2009. The HVCC is a new policy agreed between Fannie Mae, Freddie Mac to only buy loans that were appraised according to the new code. Brought on by a lawsuit filed by New York State attorney General, Andrew Cuomo, against Washington Mutual, the code created a new entity called Appraisal Management Companies who have the task of keeping appraisers apart from the lenders' production staff (loan originators, mortgage brokers, etc).

In a news article by Diana Olick for CNBC, what appraisers used to earn for conducting appraisals now must be split with the new middlemen "Appraisal Management Companies." Adding to the Coals of Concern, Ms. Olick poses the following troublesome questions:


"Why is it that some of the largest banks in the country are allowed to have partial ownership in the Appraisal Management Companies ?? Isn’t this once again the fox watching the hen house??"

AND...

"If the whole idea is to get the appraisal system out of the banking/lending system, then why is it that First American Corp., still has joint venture appraisal management companies with: JP Morgan Chase (Quantrix), Citigroup (Finiti), Wells Fargo (Rels), making First American one of the largest Appraisal Management Companies in the nation? Oh, and there’s currently a class action lawsuit against Rels, claiming it rigged the appraisal process for Wells Fargo."


While the intent of the new code is well-meaning, the code's underpinnings may prove to be faulty and flawed, at best. Especially, if big banks are allowed to have ownership in these Appraisal Management Companies. It seems counterproductive to the original intent of the code, which is to separate the appraisal process from the lending process. I believe a new can of worms has made its way into the world. When policymakers create new laws without the proper checks and balances, the outcome of uncertainty and backlashes come down as a sobering reality.

In recent times, I have seen policies made with the same good intent that ended up doing more harm than good. For example, when the Distressed Property Law first took effect in Washington State, there were some areas of concern that caused many real estate professionals to become leary of showing distressed properties to buyers, or else they would become at risk of becoming inadvertent "Distressed Home Consultants," subject to a slew of disclosure and tedious contractual requirements prescribed the new law. It will be interesting to see how the mortgage and appraisal industry will adapt as the new HVCC policy becomes a universal reality for all appraisals of 1 to 4 family properties.

What does this all mean for real estate brokers, agents, buyers, and sellers? It means that this new process may likely require more time for escrow and closing in our purchase and sale agreements. The need to put time on our side has now become a paramount consideration for all involved. According to Fannie Mae (see "Scope of Coverage" section Q1), however, this new policy will not affect multifamily properties.

In the wake of this controversial policy, a new service has emerged. The Comp Search and Appraisal Dispute service. One such company claims that it is HVCC compliant and comprises a network of experienced appraisers who are familiar with the areas where properties are located. It's hard to say what changes, good or bad, this code will materialize, but one thing is for sure. If big banks are allowed to have an ownership stake in these Appraisal Management Company, then the point of this code becomes moot.

Making Home Affordable Program: The President's plan created to help millions of homeowners refinance or modify their mortgages.

In my quest to find help for homeowners who were caught up in the mess of toxic high-interest adjustable rate mortgages, I found some information regarding a new federal program introduced by President Obama in his plan to help at-risk homeowners struggling to hang on to their homes.

While this program may not help every homeowner in trouble, I found basic information via the FinancialStability.gov website containing eligibility requirements for two options available under the new Making Home Affordable program. On this web site, there is a mini quiz comprised of a few "yes" or "no" answers to determine whether or not a homeowner meets the eligibility requirements under the program. The program has two options available, refinancing or loan modification. From what I have read, to qualify for a refinance under this program, a homeowners' mortgage must currently be a Fannie Mae or Freddie Mac loan. Otherwise, a homeowner may qualify under the programs' loan modification option depending on whether they answer "yes" to all of the following questions:

1. Is your home your primary residence?

2. Is the amount you owe on your first mortgage equal to or less than $729,750?

3. Are you having trouble paying your mortgage? For example, have you had a significant increase in your mortgage payment OR reduction in your income since you got your current loan OR have you suffered a hardship that has increased your expenses (like medical bills)?

4. Did you get your current mortgage before January 1, 2009?

According to information I found on the FinancialStability.gov website, "Servicers received the detailed program requirements on March 4, 2009 and it may take some time before they are fully operational. However, Treasury has encouraged servicers to immediately assist delinquent borrowers at the greatest risk of foreclosure."

Source Link: http://www.financialstability.gov/makinghomeaffordable/modification_yes.html

To find out whether a homeowner can qualify to participate in either of these programs, the following link will take you to the self-assessment tool to find out:

http://www.financialstability.gov/makinghomeaffordable/refinance_eligibility.html

If you are a homeowner in trouble, I encourage you to try the self-assessment tool to see if you are eligible to participate in this program. If you know of a homeowner who would find this information helpful, I encourage you to pass this along.

Three Valuable Words When Facing Foreclosure: "Produce the Note"

I saw a video on Yahoo today about three important words that can help stall the foreclosure process, "Produce the Note." In light of the crisis faced by many homeowners who have fallen victim to in the mortgage crisis, I thought it was important information to know. Below is a video produced by the Consumer Warning Network.

Video: Exclusive Buyer Agency

Exclusive Buyer Agent talks about negotiation

In the News: President Signs Economic Stimulus Measure

Today, we received news that President Obama signed the new $787 Million dollar stimulus package to "breathe new life into our economy," as stated by Ed Andrieski, a reporter for the Associated Press.

Here is something Realtors received today from the desk of Gary Wright, the 2009 President of the National Association of Realtors regarding the new Stimulus Package signed today by President Obama:

The $790 billion stimulus package signed by President Obama today increases the home buyer tax credit to $8,000, drops the repayment feature, reinstates last year's 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans, and provides $2 billion in additional funding for states and localities to be used to purchase, manage, repair and resell foreclosed and abandoned properties. Many elements (listed below) included in HR 1 "American Recovery and Reinvestment Act of 2009," were supported by the National Association of REALTORS® (NAR) as well as the many REALTORS® who sent call to action messages to Congress urging their support! Homebuyer Tax Credit.

The bill provides for a $8,000 tax credit that would be available to first-time home buyers (those who haven't owned in at least three years) for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment for buyers who hold onto their property for at least three years. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser's income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.

NAR has sought removal of the repayment requirement because it discourages buyers from taking advantage of the tax credit. The three-year minimum holding period is a safeguard against speculators' use of the credit. The legislation also extends the effective date of the credit to December 1 from June 30, and extends eligibility to borrowers who buy their home with the help of state or local financial assistance that comes from the proceeds of tax-exempt mortgage revenue bonds.

The start date for the first time homebuyer credit is January 1, 2009 through and before December 1, 2009.

FHA and conforming loan limits. Specifics have not been released but reports indicate that the 2008 limits have been reinstated for 2009 except in those communities where the 2009 limits are higher. Additional increases in individual communities may also be available at the discretion of the secretary of the U.S. Department of Housing and Urban Development.

Foreclosure mitigation and neighborhood stabilization. Funding for states and localities to be used for neighborhood stabilization activities for the redevelopment of abandoned and foreclosed homes are authorized. Some news reports put the funding level at $2 billion.
Rental assistance. Up to $1.5 billion to provide short-term rental assistance and other aid for families during the economic crisis.

Transportation infrastructure. Up to $29 billion for highway construction projects, $8 billion for rail projects.

Rural housing development. Increased funding for the Rural Housing Service direct and guaranteed loan programs.

Low-income housing grants. Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.
Tax-exempt housing bonds. Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds.

Energy efficient housing. Grants for energy retrofits for federally assisted housing (Section 8), funding for energy efficiency and conservation block grants to states, increases in the residential tax credit through 2010 for certain energy efficient upgrades and $5 billion to weatherize low-income homes.

Greg Wright2009 PresidentWashington REALTORS®

An Announcement and a Word About Buyer Agency

On February 6th, 2009 I was awarded the Accredited Buyer's Representative designation (ABR) through the Real Estate Buyer's Agent Council. Although, this designation does not represent a committment to exclusive buyer agency. For me, earning this designation is a part of my personal committment to the exclusive representation of the buy-side of real estate transactions and to the advancement of exclusive buyer agency.

I should clarify that the practice of exclusive buyer agency is not the same as an agent who professes to be working exclusively for buyers, but who works for a real estate company that takes listings as well. A true exclusive buyers agent works for a broker and company that never takes listings because it has dedicated its entire business to representing the interests of buyers.

Exclusive buyer agency is an option that gives real estate buyers a way to completely avoid conflicts of interest in their real estate purchases, aka. "Dual Agency," and "Designated Agency," which is just another form of dual agency. Avoiding dual agency is especially valuable to investors because they rely on their real estate representatives to level with them and tell them when a listing is overpriced, as well as negotiate assertively on their behalf for a price that meets their investment objectives.

However, when a listing belongs to their agents' company or, worse, to their agent, the lines of loyalty can blur. In a dual or designated agency situation, a buyer cannot be 100% sure that their agent will tell them whether a listing is overpriced and by how much exactly. To do this would put them in direct conflict with their (or their brokers') duty to the seller.

With exclusive buyer agency, buyers can rest assured that the agent, broker, and company are representing their interests exclusively no matter what property they go to see. Buying real estate right is the first step to building a profitable portfolio of income properties. The peace of mind and degree of loyalty given by exclusive buyer agency is the value it brings to buyers whether buying a home or income property.

I believe the future will continue to be bright for exclusive buyer agency, and I will be working towards earning the Certified Exclusive Buyer's Agent (CEBA) designation through the National Association of Exclusive Buyer Agents (NAEBA), as well as the Certified Commercial Investment Member (CCIM) designation to better serve the acquisitions of my commercial and investment real estate clients. I strive for such excellence because I have a vested interest in the success of my clients. Their success is mine as well.

Real Estate Investing: Increase Your Financial Education

Whenever I talk to real estate investors who are just starting out on their journey to financial independence, I encourage them to build their knowledge through the many educational resources available that teach people how to build financial security in their lives.

My specialty is being an advocate for the buy-side of investment property purchase transactions for investor-clients. This has been a mission for me since 2003 when I became truly independent of the buyer/seller representation model of traditional real estate companies. Income property does not serve its intended purpose if it does not produce positive cash flow. The same can be said if the income produced does not meet an investors financial goals. Education is the key.

No matter who we are or where we come from, the road to creating financial security begins with obtaining good information, informing ourselves through the pursuit of financial education, and expanding our financial literacy. As a lifelong student of personal growth and development, I am always seeking out good educational resources to increase and expand my professional expertise and financial intelligence, as well as teach and share my experiences with the people I serve best...my valued clients, family, and friends.

Here is a video from the Rich Dad company with co-founder Robert T. Kiyosaki talking about three types of education. Enjoy!

King County Now Requires Septic Systems to be Inspected at Time of Sale

In the news recently, I found out that King County now requires all septic systems to be inspected at time of sale. Here is an excerpt from the bulletin issued by the Northwest Multiple Listing Service (NWMLS):

"January 16, 2009. In King County, the seller of any single or multi-family residential property served by an on-site septic system is now required to have a monitoring and performance inspection prior to transfer of title. King County will require the inspection and report to be completed by a King County licensed On-Site System Maintainer (OSM). A copy of the inspection report must be submitted to the Health Department and the buyer prior to transfer of title. The new requirement is set forth in King County Board of Health Code Section 13.60.030."

(Photo Courtesy: pottyon.com)

Here is in interesting factoid about septic systems from pottyon.com:

"Most septic systems are conventional systems that use gravity to distribute the effluent from the tank. When site conditions are not appropriate for a conventional system, other types of systems, such as low pressure distribution or mound systems are sometimes used.

Septic systems cannot dispose of all the material that enters the system. Solids that are not broken down by bacteria begin to accumulate in the septic tank and eventually need to be removed. The most common reason for system failure is not having these solids removed on a regular basis. When the holding tank is not pumped out frequently enough, the solids can enter the pipes leading to and from the tank. This can cause sewage to back up into the house or cause the drainage system to fail as the pipes and soil become congested. These problems are often costly to fix, pose a danger to public health, and are a significant source of water pollution. Seepage from inadequate or failing septic systems can contaminate both ground and surface waters. The industry recommends having a licensed company clean your septic tank every two years to perform preventative maintenance."

One thing I should note is that septic systems can be very costly to redesign and replace. According to Evergreen Septic Design, they can range anywhere from $5,000.00 to over $20,000.00 +. Therefore, regular maintenance is important. Some septic system companies recommend pumping the septic system every 2 to 3 years and others say every 5 years. I, personally, would err to the side of caution and do this every 2 to 3 years. The cost to do so is minimal and would be worth the money saved in having to redesign and install a completely new system.

I found a wealth of information about septic systems on Evergreen Septic Designs' website, so if you are interested in learning more about septic systems, this would be a good place to start. Other information resources include Amman Septic Designs Inc, and King County.

The Bust is a Boon: Buyers Across the US are Finding More Affordable Homes

From CNNMoney.com, the headlines read:

"From California to D.C., falling home prices and cheaper mortgage rates are making dream homes possible."

Yes, we are definitely in a buyers' market where homebuyers can find homes that were previously priced beyond their reach. This article from CNN features the stories of several buyers and their experiences in the current homebuying market. I thought this was an interesting article, so here it is.

Some Things are Worth Second Chances: My Return to NAEBA

As of this week, I officially reinstated my company with NAEBA, or the National Association of Exclusive Buyer Agents. The change of heart came after a few years of going it alone with the encouragement of peers who were kind enough to keep in touch with me. After speaking with a few peers and Kim Kahl, who is the executive director of the organization I learned that many things have changed for the better. I am excited to see all of the new changes taking place, and I look forward to joining a committee and contributing my energy to the goals of the organization.

Sound Advice from a fellow EBA: How to Get The Best Deal in a Buyers Market

I came across a blog post today written by an EBA peer in Nashville entitled "Buying Real Estate - How to Get The Best Deal in a Buyers Market." The blog post presented some good and very helpful advice for buyers in today's buying environment, so I decided to blog about it and point the way! :)

Here is a sneak-peak:

"First and foremost...decide how you will pay for it! Do you have cash...or you will be looking for financing? If financing is in your plans...be sure to arrange for it ahead of time. Be sure to obtain a copy of your credit report and correct any mistakes...NOW! If you plan to live in the home as your primary residence, it will require a smaller down payment. But, if this is an investment...you should plan on at least 20% down. AND always have a pre-approval letter from your lender in hand when you make your offer! It will greatly help your agent negotiate the best possible price for you.

Then, when it's time to start house-hunting...look for a good Exclusive Buyer's Agent who will help you find the right property...and buy it at the best possible price. A few tips to consider when buying real estate..."

(photo: activerain.com)

Seven Fundamental Keys to Building Cash Flow in Real Estate

Whether a person invests in real estate, paper assets (like stocks and bonds), or business opportunities, investment strategies are unique to each individual. This blog will focus on one particular type of income producing asset--real estate. While there are many ways to build an investment strategy around real estate, for example, buying fixers and selling them for a profit or purchasing bare land and developing buildings for sale or lease-the scope of this article will focus on seven keys to building a strong portfolio of cash-flowing properties.

1. Assess Your Situation

(a) Know What You Need and Want

The first item to consider is whether real estate is right for you. It is not for everyone, but if you find that real estate investment is what you want, then designing a real estate investment plan is the best place to start. From a cash flow perspective, identify what your current monthly expense requirements are and how much income you need every month to maintain your current lifestyle. Once you have this figure, consider where you want to be in five, seven, or ten years, etc. How much monthly cash flow will it take to support this future goal? Then add this to your current monthly expense figure and you will have a starting point for your cash flow goals. This figure will most likely change as you begin working your plan and making periodic adjustments to your goals.

(b) Assess Your Direction and Identify Your Preferred Property Type

Within real estate, there are different property types from which to choose from, for example, single-family rentals, multifamily rentals, office buildings, industrial office buildings, warehouses or public storage, retail properties, etc. Each property type has its own unique considerations and operational requirements.

Researching and learning how to operate that particular property type means having the knowledge to manage the management team from an informed position.

(c) Know What Kind of Financing is Available

While the mortgage market recovers from its recent meltdown, financing requirements will remain tight, but there are still options available to facilitate purchases, such as seller financing and lease options. Learning about the different financing options available is a key factor in planning a real estate investment strategy. Financing can mean the difference between a good and bad deal. Before the mortgage crisis, lenders commonly required a 1.20 DCR or "debt coverage ratio"--meaning, they would require 20 dollars of income for every dollar of debt that the property carries. With this information and a property's net operating income, you can calculate maximum loan amounts and minimum equity requirements (aka. down payment) for any income producing property. This can also help determine whether a property is overpriced and at what price the property will yield your required rate of return.

(d) Set Your Required Rate of Return

If you want your money to work harder than a savings account or a CD, then determine your required rate of return upfront and use this rate to calculate the investment value of a property based on its net operating income. This maximum amount will be the point where you will draw the line on any particular investment. When a seller is not agreeable to your maximum price, then it is time to walk away and find an investment that will fulfill your investment requirements.

(e) A Word About the Tenant Landlord Law

If you are considering single-family and/or multifamily rentals, then you will need to become familiar, if not well versed, in Tenant Landlord Laws. Having a set system that keeps you in compliance with the law is a wise investment of time and money. Management companies and real estate attorneys can be helpful in this area.

2. Set Minimum Property Requirements and Limits

From a cash flow perspective, the ideal situation is to start receiving rents the following rent period after closing. If you have to gut and rehab a building entirely, there will surely be a period of downtime and you may have to support the property until you are able to lease and begin receiving income. If your goal is immediate cash flow, then a major rehab project may not be the right project type to consider. Instead, a well-maintained property or one that needs a minor amount of cosmetic work with a steady tenant history is the ideal property from a cash flow perspective.

3. Assemble a Stellar Team

Assembling a team of professionals dedicated to your financial success in real estate is a key component in realizing your cash flow goals.

The Real Estate Broker - A buyer's broker who is also an experienced investor, if you want to avoid dual agency, then find an exclusive buyer's broker to work with.

The Mortgage Planner - A mortgage planner that specializes in investment and commercial properties

The Financial Planner - A financial planner with a positive perspective towards-and a full understanding of-real estate investments

The Real Estate Attorney - To review all loan and closing documents before signing, as well as any contracts or agreements-this is a CYA (Cover Your Assets)

The Management Company - A professional management company with a solid reputation will free your time so you can live your life and look for more properties to buy

The Property Inspector - This team member should have experience inspecting your chosen property-type.

4. Real Estate Investments Are About the Numbers

Leave Emotions at Home

Buying a real estate investment is about making money with property-not falling in love with property. This is especially bad, if the seller becomes aware of the infatuation. Investment real estate is about what it can do to bring you closer to your income goals, period.

5. Buy Properties Right

List Price Does Not Set Property Value

Regardless of the price, you see on a listing, a property's investment value will vary between investors because his or her required rate of return will be unique to each situation. Therefore, a list price is just an asking price. Set your required rate of return and make an offer accordingly. If meant to be, the seller will either accept or open up negotiations. If not, then it will be better to walk away than to end up with a property that does not meet your investment goals.

6. Periodically Re-Assess Your Direction and Make Adjustments as Necessary

If you started out with single-family rentals, you may decide to upgrade and own small multifamily buildings. If you own small multifamily buildings, you may decide it is time to buy your first 16 or 20 unit building, etc. The point is to keep your eyes on the horizon for new opportunities to grow your knowledge and portfolio of income properties. With experience comes confidence and with confidence comes new learning opportunities that will continue on a path of limitless growth. When it comes to learning, growing, and evolving we limit ourselves by the barriers we place upon ourselves.

7. Cash Flow Strategy: Buy Right and Hold Long-term

The key to building cash flow through real estate investments is to buy properties that satisfy your investment requirements upfront and holding them for the long term--a minimum of five years or ideally ten years. Have an exit strategy in place before the property approaches the end of its holding period. Start learning about 1031 tax-deferred exchanges and speaking to a specialist who can help guide you through the process well in advance. Being familiar with the process will ensure a smooth exchange transaction and preserve your wealth-building strategy when the time comes. Your accountant, tax attorney, or a financial advisor well versed in the area of 1031 exchanges can provide you with more information.

In closing, real estate investing can be a very rewarding experience. It requires planning and knowledge, but the end-result can secure your financial future. Education and motivation are key factors in building wealth and achieving financial independence.

(photo: http://www.singlepointerealty.com/)