BiggerPockets

H.R. 2751 and its Effect on Land Supply

Thursday, January 06

H.R.2751, also known as the FDA Food Safety Modernization Act, passed the senate before the holiday and was recently signed by President Obama. You might be asking why I'm writing about a food safety bill on a real estate blog? The answer lays in the actual text of the bill (soon to be law).

One of the tenets of the bill will require farm and food manufacturers to prepare safety reports for their food during many stages of production. Proponents of the bill argue this will be an economic boon for most farmland states adding jobs and boosting the economy. Those who propose the bill say that even doubling the amount of food inspectors won't do much to add safety in our food distribution system.

No matter which way you shake it, some manufacturers will likely need to add facilities to keep up with the new regulations. Until technology improves, cutting crop size to make room for new buildings is not an option because that would reduce crop yield. That means expanding into new territory, which could mean purchasing new tracts of land, development deals, and new construction contracts.

With some luck, real estate agents and brokers in the farm scape may see an economic boon to their businesses soon too!

 

Photo credit: dbking via Flickr.

 

Hard Money Rehab Loans

Friday, August 06

Two years ago a heartbeat and a signature could get you 100% financing on a residential rehab project. Today, rehabbers are persona non grata to most commercial banks. Combine that with new financial regulations and exotic lending programs from banks will be sidelined for several years to come, no doubt.

The only problem is, the deals are happening now. Banks and servicers are selling properties at 30-50 cents on the dollar, others are liquidating notes for whatever cash they can find.  The investors with cash are cleaning up and putting together portfolios of property that will explode in value over the next few years. But what about the investors without all that cash? Is there no hope for owning an investment property and taking their piece of the american dream?

That's where hard money comes in.

I'm a big fan of hard money, especially in our current credit market, though I will admit, hard money has changed quite a bit in the last two years. Absent of investing all cash, hard money loans are the next best method of taking down residential properties, rehabbing them, and wholesaling them out to other investors and potential homeowners.

For the newbies out there, hard money is a loan that is based purely on the value of the asset being pledged as collateral. They're much easier to qualify for than conventional loans, but are alsomuch more expensive.

Hard money loans are especially good when rehabbing and flipping properties, since you're in the property for much less time (hopefully) the added interest rates (10-18%) won't do too much damage to your profit margin. You will have to watch out for the front end costs,usually between 2 and 6 points, because those numbers will effect your bottom line, and can sometimes lower your net loan proceeds.

Even with hard money you'll still need to put some skin in the game. Most reputable hard money lenders are asking for 20% of the purchase price, though there are still a few holdouts who will fund 50% - 60% of the true property value, which might get you slightly more leverage. It's getting harder and harder to convince hard money lenders that the property you're picking up at has a "true value" twice what you're paying for it.

Before signing on the dotted line for a hard money loan, make sure you are being realistic with your rehab time line. You don't want a 3 month loan term if it will take four months to rehab and sell the property. It's better to pay more for a longer loan than to get it with default interest rates and fees.  Give yourself enough time to get in and get out, and don't be afraid to ask for extensions. If you've made your payments on time and haven't fallen behind most hard money lenders will be more than happy to extend your loan, especially if they can charge you for it.

If you're new to the flipping world, or if you're an experienced rehabber but your short on cash these deals are great deals to strike up your first partnership. An $80,000 purchase price will require only $16,000 down payment. Split that two ways and you're into a property for only $8,000 each. $200 for a BPO, clean title, and that's pretty much all you need to get started with a hard money loan.

Good luck.

Income Increases, So Does Spending

Friday, April 02

The bureau of economic analysis (BEA) released its income and expenditures report for the month of February 2010, showing personal income rose $1.2 billion and disposable income rose $1.6 billion.

However, personal expenditures rose at a higher rate than income, meaning American's were able to save less during the month of February.

It would seem that we're putting more money into the economy, which is good, but people are purchasing only the essentials, still opting to skimp on big ticket items.

The increased spending could be due to a growing comfortability about the stability of some people's jobs, or it could just be human nature in finding ways to make our expenditures rise to the level of our income.

More info and the full numbers on income and expenditures here.

 

The 100 Year Buy and Hold

Thursday, March 25

Sometimes it's hard to see the forest through the trees, and I get the sense that is what is happening now in the real estate market with all the bad press out there about home sales, real estate value, and the next wave of foreclosures to hit the street.

I was doing some consulting for a local church that needed help with its finances, specifically related to its real estate holdings.  Their building and separate single family home had been built over 100 years ago. The church had amazing records and I was looking at the original deed and purchase contract to the home from the early 1900's. It was only 2 pages long and the language read pretty funny.  I looked at the purchase price and then related that to what the property was worth today.  Though it had lost about 20 percent of its value over the past three years, over its lifetime the property value had grown at an average rate of between 8 and 9 percent per year. Looking at the same time period the stock market returned eerily similar numbers, approximately 9 percent growth (split evenly between price appreciation and dividends).

Very few of us will be around in 100 years to see that kind of appreciation in our properties, but if there is a silver lining in our cloudy economy it's that every recession (or depression) has been followed by a substantial pattern of growth that has spawned new wealth and a better economy.

Hang in there. 

How Weather Affects Home Sales

Wednesday, March 24

I hadn't stopped to think about it until just recently, but weather patterns can have a distinct, and sometimes dramatic, affect on your local real estate market.

A few months ago I put a property on the market where I live in Seattle. It's a brand new home in a new community which won several development awards for its sustainable features and overall design. Normally, a property like that would bring in amazing foot traffic and an eventual offer in just a few weeks on the market.  However, winter weather, extreme cold, and more than a few all-day rain showers kept the potential buyers away.

What happened on the East coast was even worse, as people struggled to dig themselves out of almost three feet of snow for over a month.  The latest homes sales figures released by the National Association of Realtors confirms the effect that weather has on the real estate market, showing single family home sales down 1.4 percent over the month.

Further, distressed homes accounted for 35 percent of all sales, eroding the market further and bringing single family home prices down 2.1 percent to a median price of $164,300 nationally.

In the end, NAR estimates the current housing supply at 8.6 months with over 3.59 million homes currently on the market. Considering the shadow inventory debate, the increase in supply, caused in part by winter weather or not, will certainly lengthen the time of any possible housing recovery.

For more info on the NAR release read this article here.

 

7 Steps to a Business Line of Credit

Tuesday, March 23

The Federal Bureau of Labor and Statistics reports that 33% of all businesses fail within the first two years of operation because they lack adequate cash reserves to manage their expenses until the business can sustain itself from its revenues.

A business line of credit is an essential tool in getting access to the cash you need to keep your doors open before you start turning a profit, and beyond. Despite what you may have heard about most lenders' underwriting procedures and their changes with the current economy, a business line of credit is within your reach.

A common myth is that you must be in business for two years or more to obtain a business line of credit. In fact, most business banks can approve you for a line the same day you file your corporate papers.

Over the past few years I've helped entrepreneurs and small businesses, including my own, get their business lines, and in doing so, we’ve identified 7 steps you can take to get your very own business line of credit.  They're relatively simple to accomplish, each one building on the work of the step before it. Things like:

• Obtaining a federal identification number for your business
• Obtaining a business license
• Organizing your business legal documents
• Preparing your business financial reports
• Dealing with your local lender

To view a video in full HD on the 7 steps to a business line of credit click here, or visit the blog post on TheBizWizards.com to view a printable pdf of the tipsheet.