Real Estate Investing News

Housing Market Cooling Off

2005-12-13T17:29:00.000-05:00

According to Delaware Online "After an unprecedented four-year run for the home-building industry, new single-family home starts and sales could decline next year in Delaware by as much as 10 percent from 2005 levels, said Kent W. Colton, a senior scholar with the Joint Center for Housing Studies at Harvard University."

"But that's good news for home buyers, Colton told about 200 people at the annual Inaugural Luncheon on Monday of the Home Builders Association of Delaware."

"Return to a more normal market, where price appreciation is in line with inflation, could make housing more affordable, said Colton, who was the keynote speaker at the lunch held at the Dover Downs Hotel and Conference Center in Dover."

"People have been watching in despair as the market kept going up and up," Colton said."

"Rising interest rates are one factor that could cool down housing markets across the country. Some small speculative bubbles in certain markets could pop, including condominium markets in Florida, Las Vegas and California. Markets could see depreciation where investors bought properties with the intention of flipping them at a profit in a short period of time."

"Delaware's housing market could be in for a shock when MBNA Corp. is sold to Bank of America in early 2006. The banks have said they will cut 6,000 jobs nationally, and some analysts believe Delaware could lose more than 3,000 jobs. A loss of 4,000 jobs would represent about 1 percent of total employment in Delaware."

"Clearly, if you lose 1 percent of your total employment, it will have an impact. A lot depends on if they can find other jobs in Delaware," Colton said."

"One advantage for Delaware is that housing is more affordable than some nearby metropolitan markets."

"Affordability has become a major issue in recent years as home prices in certain markets, particularly on the East and West Coasts, have increased by double-digit percentages annually. In New Castle County, sellers began slapping a 20 percent increase on the price of the last home sold in a development -- and they got it in a matter of days, real estate agents said."

"As a result, the median price of a home in the Wilmington area rose to $183,000 in 2005, which means a buyer needs an annual income of $58,035 to afford the home. But an elementary school teacher earned just $48,039 in 2005, a police officer $46,489 and a retail salesperson $25,003. This creates an affordability gap, Colton said."

"The gap is even wider in Washington, D.C., where the median price of a house is $339,000. The annual income needed to buy that house is $107,507. However, the wages of elementary school teachers, police officers and retail salespersons are roughly the same as around Wilmington."

"As a result, many people would rather buy a house in Delaware and commute to jobs in Philadelphia and other metropolitan areas because housing here is so much cheaper, Colton said."

"Bringing housing more in line with inflation wouldn't be bad for anybody," he said."

Contact Maureen Milford at 324-2881 or mmilford@delawareonline.com.

Outside Investors Buying Up Treasure Valley

2005-12-12T23:34:00.000-05:00

According to The Idaho Statesman "Investors from outside the Treasure Valley have discovered Valley real estate."

"But experts worry that the very things that make homes attractive to investors - affordable housing costs, a strong rental market, a superior quality of life - are threatened by the investment boom."

"Property investors from California and other states are snapping up homes in Boise, Meridian and Eagle over the Internet and sight unseen. In the first nine months of 2005, Boise ranked fourth-highest in the nation for the share of home loans taken out by investors, according to LoanPerformance. Investors accounted for 20.5 percent of all home loans in the period - up from 11.4 percent in 2004 and 8 percent in 2003."

"Real estate chat rooms and Web sites are full of talk about Boise, Meridian and Eagle, investors say. National magazine and newspaper articles list the Boise metro area as a top city for business and "underpriced" homes, according to local agents."

"Boise city planning director Hal Simmons said he talks to real estate agents and developers who have seen "busloads" of investors from out of state come through the Valley and pick up properties."

""It's clearly a trend that (the Boise metro area) is being discovered and invested in by people outside of Idaho," Simmons said."

"The out-of-state investment boom can be good and bad, say local property owners and real estate experts:"

"Higher home values mean that local property owners who want to sell their homes can do so more quickly and for more money."

"The run-up also can mean higher home costs for people looking for homes and higher property taxes on inflated home values."

"Residents looking for a place to live may be priced out of the housing market or get into bidding wars with investors with more money."

"People who live next to homes that become investment rentals can find themselves with transitory neighbors and, possibly, lost potential value if properties held by absentee owners aren't kept up."

"Some experts worry that an over-heated housing market could create - and then burst - a real estate bubble, bringing down property values and slowing home sales."

"'Boise was put on the map as underpriced'"

"Local buyer's real estate agent Lynn Sturgeon said about 80 percent of her business is conducted over the Internet with people living out of state. Buyers find her on the Internet."

"The last two years there has been a shift of out-of-state investors," Sturgeon said. "It's hit hard. Somehow, Boise was put on the map as underpriced."

"For the past five months, said Chris Findlay, a Boise real estate agent and developer, out-of-state investors have been snapping up homes under $200,000 across the Treasure Valley. Findlay said colleagues in California even heard Boise real estate discussed on a radio talk show program. Clients find him via his Web site and through word-of-mouth, he said."

"Forbes magazine listed the area No. 1 on its Annual Best Places for Business and Careers in May. Within the last year publications like The New York Times and Newsweek have chronicled similar Internet real estate trends in Eagle and Pocatello, respectively."

"Findlay and Sturgeon both say their business picked up after the Forbes magazine list came out in May. Investors are choosing both older and new 1,400- to 1,500-square-foot homes throughout Ada and Canyon counties, generally with pricetags under $200,000, Findlay said."

"Idaho cheap compared to California prices"

"Tony Shaberman, a 35-year-old engineer from California, decided traditional stock-market investing was far too risky. And he said home prices in California made it impossible for him to invest in rentals there."

"The Sacramento home he purchased for $160,000 in 1994 is worth more than $400,000 today. So he and a partner went house-hunting on the Internet. To date, they have invested in several rental properties in Southwest states like Arizona."

"Shaberman heard about the Boise area through his Arizona agent, who grew up in Idaho. And now Shaberman said he's looking to buy in the Boise Metro area this winter, most likely without ever visiting Idaho."

"The Treasure Valley's main draw is the affordable prices. "Compared to California, they look real cheap," Shaberman said. "I look at home values around $100 per square-foot and other factors, like is it a growing city."
"In the first six months of 2005, sales of single-family homes in the Treasure Valley were up 26 percent compared to the same period the year before. Property values also are on the rise: In Ada County, the average home was valued at $230,882 in the third quarter of this year. That's up nearly $30,000 from the first four months of 2005. In Canyon County, the average home price is more than $26,000 higher in the same period."

"Even with increases like that, Idaho home prices are small change to buyers with the resources to pay."

"April Florczyk, an agent with Re/Max West in Boise, said her last seven listings all sold with more multiple offers than usual. Of those, four went to out-of-state buyers, she said."

"A lot are investors who are coming in and buying homes now and will eventually move into the area, but will turn them into rentals until then," Florczyk said. "The majority of them are coming up from California."

"Investor Susana Kjellsen has relatives in Canyon County and said she became interested in Boise after the Forbes ranking."

"Kjellsen, who is retired, lives in the Silicon Valley south of San Francisco. She said a Treasure Valley real estate agent sends her e-mail listings daily that meet her criteria on size, neighborhood and price. She is particularly interested in the area near Boise State University and St. Luke's Regional Medical Center."

"Kjellsen and her husband have several rental properties in Las Vegas and Sioux Falls, S.D., which they purchased sight-unseen over the Internet."

"We wanted to protect our investment in terms of stable renters, good area, potential for appreciation," Kjellsen said. "And in the county I live in, you can't find anything under half a million dollars."

"Bidding wars and high prices for local buyers"

"Gina Emery, an agent with Holland Realty in Eagle, said outside investors are driving prices up and entering bidding wars over even bare land. Out-of-state investors are buying homes and letting them sit empty for around a year then reselling - or "flipping" - the homes after they appreciate."

"Some buyers are now including "escalation clauses" with their purchase offers, promising additional money over the highest bidder to ensure they get the property, Emery said."

"The local guy is having to participate in the bidding to even move across town," she said."

"Emery mostly handles sales of building lots. Recently a client bid $150,000 on a bare 5-acre lot the day it hit the market offered at about $130,000. But the sellers pulled it from the market after a flurry of high bids came in, Emery said."

"I saw it on the multiple listing service (a few days later) for $180,000," she said."

"Home prices in the Boise metro area appreciated 10.05 percent in value over the past year, according to the House Price Index, a quarterly report analyzing housing price appreciation trends by the Office of Federal Housing Oversight."

"Treasure Valley real estate agents say they have local clients who can barely afford escalating home prices. Rising home prices should be a concern, said Simmons, the Boise planner."

"I am sure anybody who thinks about it is worried about affordability and the ability of first-time buyers to get in the market," Simmons said."

"Some market watchers have other worries, too. If too many homes hit the market at inflated prices, and if interest rates increase, market demand could dry up. That could eventually lower home values across the valley. And could mean slower appreciation rates for years, according to local real estate agents and planners."

"The Idaho housing boom should remain strong even if other markets experience the end of the housing bubble, according to a Zions Bank forecast from last August. The areas in the so-called bubble are experiencing sky-high appreciation rates. A Zions Bank economic forecast prepared by Thredgold Economic Consultants predicted that Idaho housing values would continue to rise for the next two years."

"Rentals, absentee owners worry some"

"Outside investors say Boise area homes make a good deal. For a down payment of $10,000 to $15,000, Shaberman said, he can make 10 times that much money when selling the properties years later. In the meantime, he said, most investors hope to just break even on mortgage payments while renting the home."

"The Boise area remains a strong market for rentals because a lot of people looking to rent, from college students to established families, real estate agents say."

"Even with more renters buying homes, the rental market has stayed strong, Findlay said. Some outside investors say they've found that the Treasure Valley's quality of life draws a generally conservative, responsible renter."

"But some residents still worry about the impact of rental homes on their neighborhoods."

"Ed Beisly, a retired band teacher, has lived in the same Meridian home since the early 1970s. A number of homes in his older neighborhood have turned into rentals, he said. He doesn't necessarily mind rental homes, but he does worry about the transitory nature of renters. Beisly said he doesn't get to know those neighbors as well as long-time owners."

"My concerns are just appearances," Beisly said. "It's important that properties in your neighborhood have a lawn that's kept up, it's not burnt out, and it's mowed every week."

"Eagle city planner Nichoel Baird Spencer said residents often are concerned about maintenance and upkeep on rental properties, especially when the owners live out of state."

"Crime tends to increase in more rental areas, just because there is not someone there who owns the property to have heightened awareness," she said. "I just think the longevity of a rental is not the same as ownership. They don't build up a rapport or know their neighbor as you would with an owner."

"Cecily Tippery grew up in the Boise area, and now lives in Discovery Bay, Calif., with her husband, Craig Klooster."

"When the couple wanted to invest in rental properties, they looked at Boise. They own a condominium and bought a 1,700-square-foot rental home in southwest Ada County this past April."

"Tippery said she sees the properties as long-term investments and isn't looking to "flip" them. She and her husband are particular about the people they rent to, and lucky, she said. The Boise area is a good bet for responsible renters, she said."

"Since we are not there, we need to have some sort of reassurance it will be taken care of in general," Tippery said. "If we had the money right now, we would probably buy another property there."

Abusing The System

2005-12-12T06:44:00.000-05:00

According to St Petersburg Times "The real estate boom certainly has a trickle-down effect."

"With housing prices skyrocketing, many homeowners have been trying to cash in."

"And that includes buyers on the low end. Some in Pasco County have been making a profit subsidized by taxpayers. That's a different kind of welfare."

"Participants in the county's home buyers assistance program have been reselling their homes too fast."

"Pasco County officials think it's time to talk profits and penalties."

""We've noticed that as we get payoff checks, they're owning the property for less than a year,"" said George Romagnoli, who manages the Pasco County program."

"Pasco, like Hernando and Citrus, gets state money to help low-income families. Housing officials in Hernando and Citrus haven't seen much if any flipping in their low-income homeownership programs. But that doesn't mean all is well."

"Predatory lenders, attracted by the healthy equity in the Habitat for Humanity homes, have been courting low-income homeowners, said Jerry Steele of the Citrus County organization. While it is becoming increasingly difficult to find affordable housing in places like Citrus and Pasco, there is no shortage of money to help low-income home buyers."

"At the start of the year, Romagnoli was talking about having $3.5-million he was trying to lend. A family of four that makes less than $61,440, for example, can qualify for $10,000 toward an existing home or $14,000 toward a new one."

"Banks are the primary lenders for the bulk of the home loans. The county provides the portion used for down payments and serves as the second mortgage holder."

"Properties are appreciating at 25 to 35 percent a year, sometimes even more, Romagnoli said."

"To accommodate the rising housing prices, Pasco County upped the limits on the homes that can be bought through the program: $150,000 for an existing house; $180,000 for a new house."

"The average interest-free loan is around $25,000, Romagnoli said."

"But unlike the typical mortgage, the homeowners don't have to repay the zero percent loan every month. They can repay the money when the house is sold."

"All the money that's repaid goes into the county housing trust fund to serve as loans for other low-income home buyers."

"With the quick rate of repayment, that means more money is available for other low-income home buyers. For the fiscal year ending in September, the county collected $4.1-million, Romagnoli said."

"But some of the turnaround times have been scandalous."

"For example, Romagnoli's office has been getting loan payoffs from people who bought houses in May 2004, January 2004 and even as recently as March."

""They haven't lived in it very long. It defeats the purpose for us to get paid back so quickly," Romagnoli said."

"The purpose of the program is to provide homeownership and to stabilize neighborhoods."

""The incentive is for them to stay in the house and stay in the neighborhood," Romagnoli said. "That's the purpose of the zero percent loan.""

"Sounds like a lot of those folks have been staying up late watching those no-money-down real estate infomercials."

"Imagine getting a $20,000 loan for a down payment, then reselling the $100,000 house for $160,000. You repay the lenders and walk away with the profit."

""It's an abuse of the system," Romagnoli said. "Being in a house for less than five years doesn't stabilize the neighborhood.""

"Pasco County says no more."

"Beginning Jan. 1, those who get interest-free loans will be penalized if they sell those properties within a certain number of years."

"If a family buys a house with county help and sells it within three years, they will have to share half the profit with the county. If they sell the house four years later, they get to keep a greater share of the profit."

"Sounds fair enough."

Andrew Skerritt can be reached at 813 909-4602 or toll-free at 1-800-333-7505, ext. 4602. His e-mail address is askerritt@sptimes.com

The Housing Bubble Is Deflating?

2005-12-09T07:26:00.000-05:00

According to Sun-Herald: There is mounting evidence that the speculative bubble in housing markets is deflating all across the United States.

Sales of existing homes retreated by 2.7 percent in October, and the decline was broad-based. Existing home sales dipped 2.5 percent, while condominium sales fell 4.4 percent.

Sales were down 6.5 percent in the Northeast, 7.2 percent in the Midwest, and 2.1 percent in the South, while they were flat in the West. The inventory of unsold homes rose 4.9 percent during the month, a new high for this business cycle.

Interestingly, prices have kept rising, with average prices up 16.6 percent compared to last October.

As painful as this may be, this slowdown in home sales is occurring in an orderly fashion so far. Mortgage rates and new applications for mortgages point to a continued and orderly slowdown through year-end.

Much of the slowing in home sales reflects the Federal Reserve's 300 basis point increase in the federal funds rate and the consequential increases in mortgage rates. The Fed has promised to continue to increase the funds rate, and must continue to do so to prevent the economy from overheating and the housing market bubble from bursting.

Here in Florida, there is evidence of a housing bubble. Over the last few years, residential building permits in Florida have averaged 240,000 permits per year. However, household formation in Florida has only averaged 166,000 per year. Thus, there is demand for about 166,000 new residential units per year from the permanent population.

To this we must add about 25 percent for second homes and for seasonal residences. This adds another 42,000 units per year for a grand total demand of 208,000 units per year. But the permits are running at 240,000 per year. Therefore, a lot of speculative units have been constructed -- by my estimate, some 75,000.

Where are all these units? About 25,000 are in Miami-Dade County alone, and they are all condominiums. But every major market in Florida has its share of excess speculative units.

Even Orlando is not immune; there is a mismatch there, too, between household formations, which have averaged about 30,000 per year, and the 35,000 building permits issued on average over the last few years.

The final piece of evidence is that home closings are slowing in Orlando and across the state. In September, 4,420 existing home sales closed, an impressive figure but down more than 15 percent from its early peak this year. This indicates that even by September, before the latest increase in mortgage rates, home sales were declining.

All of this suggests that we are having an orderly, if painful, slowdown in housing. A deflating of the bubble, not a bursting.

Hank Fishkind, Ph.D., is director of Fishkind & Associates Inc., an economic consulting firm in Orlando. You can contact him at (407) 382-3256 and by e-mail at home@fishkind.com. You can visit his Web site at www.fishkind.com.

Housing Bubble About To Burst?

2005-12-09T07:12:00.000-05:00

According to The East Carolinian: In the last seven, years housing prices have outpaced inflation by 60 percent.

Usually, home prices are correlated very closely to inflation. This has been attributed to low interest rates and the fact that the economy was doing well enough for people to buy affordable homes for the first time. Many people believe this incredible pace cannot endure and that the sudden halt in growth will cause the bubble to burst much like the way tech stocks did in 2000.

The housing bubble and the tech stock bubble are not the same, however. In 2000, there were many Internet companies that had no earnings and were selling for high prices. The demand for these companies created the market and drove the prices higher.

"Amazon is priced at more than Ford and General Motors combined despite the fact that Amazon has never made a dime," said Berkshire Hathaway Chairman Warren Buffett.

"That does not even make sense to the inexperienced investor."

When bubbles are allowed to continue too fast and for too long, a depression can take hold like the Great Depression, which marked the last time that housing prices fell so precipitously because unemployment was around 25 percent.

Houses are not nearly as volatile and have an intrinsic value, meaning they will not go to zero in price.

This is mainly due to Keynesian economics, stating that builders and manufacturers will seldom, but probably never, sell their products for a price lower than what it costs them to produce it.

Keynesian Economics refers to John Maynard Keynes, the noted economist who virtually invented modern economics by de-bunking classical economic thought and citing what he observed happening in the real world in that producers often will lay off workers in bad times rather than take less money for their goods. Keynes resigned in protest due to the harsh stipulations placed on Germany by the Treaty of Versailles at the end of World War I.

Houses cost a lot of money to build in terms of raw materials and labor and a house has an intrinsic value that a lot of stocks do not have. Housing is a significant part of the U.S. Gross Domestic Product, with about five percent of it based on home building.

While the steep increase in price may not continue much longer, due in part to the increase in interest rates, the market will not completely "bottom out" as the average person owns a home for 14 years and 85 percent of houses in the U.S. are owned by individuals rather than investors, thereby making for a drastically less volatile market - one based largely on value.

In addition, the age demographic with the largest percentage of homeowners is senior citizens who have a "buy-and-hold" mentality.

In general, the real estate market catches up to economic changes much more slowly than the stock market because of the physical nature of buildings.

In short, a housing bubble of tech bubble proportions should not be feared because the incredible rise in prices may soon cease.

Start With The Right House

2005-12-06T07:19:00.000-05:00

Buying the right house can make all the difference in making a profit or taking a loss. Here is an article that talks about finding the right house he purchase.

Flipping Houses: Start With The Right House

Many real estate investors enjoy "flipping houses," or buying and selling houses quickly for profit. Not all flips are fixers; however rehabbers make millions turning ugly houses into dollhouses. On the other hand, some inexperienced investors lose money buying houses that just don't turn a profit.

If you're looking to get started investing in real estate by fixing and flipping houses, you'll want to know what type of property to buy.

Three Tips to Help You Find the Perfect Fixer

1. Understand Your Market

Your first task, exploring your market, helps you know a deal when you spot it. Look at houses for sale in your area. Keep track of sales and how long the houses take to sell. Ask the selling real estate agent about the terms of these sales because this helps you understand how sellers market their property (some of this information is public record). For instance, if a seller paid closing costs for the buyer, did the price rise from the listed price accordingly? Or, did the seller come down on the price and also pay the buyer's costs? Examine the sales that sell quickly. What home features and financing options prompted the fast sale?

Also, look at model homes. Buyers often buy resale homes because they can't wait for a new home to be finished. But these buyers like the special features new homes offer. Visit model homes and take notes on how details like a water fountain or a new state-of-the-art appliance makes a house sell itself. When you remodel your fixer, you'll know what turns buyers on and you'll make smart makeover choices.

2. Know When "Ugly" Means "Profit"

When you first start out in your real estate "flipping fixers" business, you'll want to look for houses needing only cosmetic work. Look for houses that just need cleaning up, painting, and new flooring. Use your imagination when viewing these homes. Try to visualize the finished dollhouse as you look at structural features and the surrounding homes. We like to buy the ugliest house in a decent neighborhood.

Don't be afraid of stinky houses that show horribly; look for fixers with peeling paint, holes in the wall, stained carpeting, and trash in the yard. Remember, these houses won't look good to most buyers, but other investors see them as gold mines.

3. Know When "Ugly" Means "Pass"

When you're new to real estate investing, always remember your limitations. Use caution when considering houses that need structural repairs. Some rehabbers replace walls, plumbing, structural beams, sub-flooring, and electrical systems, but they acquired those skills after years of experience or they have the money to pay a professional.

If you find a house with structural problems, get estimates from reliable contractors to do the work. If the walls have too many cracks and bumps, you may need to hang new sheet rock or hire a professional plaster refinisher. Look for signs of plumbing problems such as water stains under sinks and loose flooring, and get estimates for professional repair. Take professional estimates into account before deciding whether or not to purchase an investment property. Any big expense decreases your eventual profit.

Turn Yucks into Bucks

Why would anyone want to do this hard work? How much does the average investor make? In Philadelphia, real estate investors buy houses expecting a profit of about $30,000. In Southern California, many investors make $50,000 to $100,000 on each house.

When you find a garbage-filled, flea-infested house in a family neighborhood, take your bug spray, hold your nose, and get ready to make a difference, in the neighborhood and in your bank account.

You can make a fortune fixing nasty houses. Learn your market. Know when "ugly" means profit in your pocket, and when to keep looking for the house with the hidden gold mine.

About The Author...

Copyright (c) 2005 Jeanette J. Fisher. All rights reserved. For more articles about finding, financing, fixing and flipping houses, visit Jeanette Fisherï¿½s Doghouse to Dollhouse for Dollars. Learn about decorating to attract buyers. Professor Fisher teaches Design Psychology college courses and professional real estate seminars. She also writes books and articles on home staging, credit for buying real estate, and other topics. www.doghousetodollhousefordollars.com/ . Questions? doghousetodollars.blogspot.com/

Buying Pre-Foreclosures

2005-12-03T09:24:00.000-05:00

If you can find a property that has a lot of equity built up and also has an owner that has run into hard times you could very easily find yourself with a real nice profit maker. This article discusses ways of buying properties before they end up in foreclosure.

Buying Pre-Foreclosures

These methods work in Florida because we have mortgages, however I am not sure of the process for states that use deeds of trust. Much of this information will apply to Florida and its laws so it is best to get the overall gist and apply it to your area.

I have purchased several properties over the last 6 years in the Sarasota, Florida area by finding pre-foreclosures. Pre- foreclosures are simply homes that have gone into foreclosure but have not sold at the auction yet.

This used to be a great way to pick up undervalued real estate. However, recently it has not worked that well do to the super hot Sarasota, Florida real estate market. I started out with pre-foreclosures because I did not have the money to purchase homes at the county auctions. Typically the auctions require you to pay cash at the day of the auction.

Step 1 - Find the website for your county that contains courthouse information. Many counties now have their court information online, however smaller areas may not be that advanced yet. You are basically trying to find information on lawsuits.

Step 2 - You will want to look for people who are being sued by their mortgage lender. In my area the very first step to a foreclosure is the "Lis Pendens". Latin for "a suit pending," a written notice that a lawsuit has been filed which concerns the title to real property or some interest in that real property.

When a homeowner stops paying their mortgage the time it takes for a bank to start foreclosure proceedings varies. However, I have noticed it is around 4-6 months. I guess the banks figure at that time the homeowners are in too deep and will not be able to pull themselves out.

Every counties computer query system is going to be different so this is where you will need to do some investigating. Typically, you will see the large banks or lenders vs. Joe Schmoe. This is the first step in the foreclosure process. These people are going into foreclosure.

Step 3 - Once you have found the "Lis Pendens" create a list of people who are in foreclosure. Take this list and cross reference them with county property records. Get to know your local real estate market. I am Realtor here in Sarasota so I know the real estate market well. There will be houses you may not want to buy so there is no point in chasing them. You also need to know the real estate market to find out if what you are buying is a deal. There is no point in going through these steps if you are just going to be a house for retail. The point is to buy the house undervalued. You need to know the real estate market to determine what is a good deal and what is not.

Step 4 - Contact these people - find a way to contact them that most suits your personality. You can call them on the telephone, knock on their door or write them a letter. I took the less aggressive approach and wrote letters. Sometimes these people do not want phone calls or to be contacted in person because they may have already been getting harrassing phone calls from banks and bill collectors.

Step 5 - Try to buy the house. Be sympathetic to their situation and try to find a win-win scenario for you and the homeowner. Obviously, you are trying to buy the house at an attractive price to you. This price will depend on what you plan to do with the property. If you plan to live there then you don't need too much of a discount. If you plan to flip it then you need a larger discount.

Here are a couple of things to remember about buying homes in foreclosure:

Banks will take less than what is owed to them. If you find a with a large mortgage in relation to it's value you may need the bank to take a discount on their mortgage. I have done this with clients when selling their home. However, banks are not dumb and they know the values of real estate have been going up the last few years so it may be difficult.

Here in Florida the foreclosure process from start to finish usually takes 3 to 6 months.

You can pull someone out of foreclosure up until the actual foreclosure sale and in some instances even after the sale.

Legitimate lenders do not want to foreclose and take back homes.

In most situations you will be dealing with the foreclosing attorney not the actual bank filing the foreclosure suit.

This information will start you off to finding pre-foreclosures to buy. In closing, I will say that it has been since November 2003 that I bought my last home this way. I bought a house for $69,000, spent about $30,000 cleaning it up and as of today it will retail for about $270,000. Of course, the home prices in my market have increased dramatically since I bought that home.

Lately, like other markets, my market has been too hot to find a property that much undervalued. With the number of articles in the local newspaper most people are aware of how hot the market is. However, within the last few months the market has slowed down. As a Realtor, I have seen many people stretch themselves to get into a house they really can't afford. Flexible lending policies should lead to more foreclosures. Good luck.

Marc Rasmussen, Realtor in Sarasota, Florida and has bought several pre-foreclosure properties. Sarasota Real Estate

Real Estate Investors Buying Formula

2005-12-03T09:01:00.000-05:00

What should you be looking for when buying a property to make sure that you are going to get the best value for your money? Here is an article that talks about this concept.

Real Estate Buying Formula

1.Determine the best use and highest market value of the property in excellent condition. This research can be done by your real estate agent (comparable Market Analysis) or by your expert knowledge (experience) in the marketplace (you should know your market inside-out and not by guessing)

2.Estimate cost of repairs use contractor estimates (you should have a team of experienced contractors) that you can trust and depend on. Your experience will help you quickly estimate ball park numbers on most any project.

3.Calculate the carrying costs of the property. Purchase costs, taxes, insurance, Title, attorney, appraisal, utilities, financing (points, interest), selling costs (commissions), advertising (for tenants or to sell), overhead expenses and may be some miscellaneous costs not listed. On a quick paint and replace carpet the work may take 2 weeks but you should plan on 2 to 3 months holding time. Larger projects may take a month or two to complete you may want to consider 4 to 6 months carrying costs.

4.What's your profit do you want to make 10% to 20% on the deal not a bad profit but 10% on a $35,000 deal is only $3,500 for two months work and headaches. You may want to consider paying yourself a minimum $20,000 to $25,000 per deal this can guarantee a good profit at the end of every transaction.

5.Offer price is the highest market value less repairs, carrying costs and profit. This is the most you will pay for the property you want to start somewhere lower, some where a lot lower, an offer somewhere lower like your agent will be ashamed to present your offer.

6.A new twist to the formula, there are a tremendous amount of bank owned properties on the market today and there be more tomorrow. When a bank takes over a property they list it for sale with a real estate broker who prices it at the market value it usually sells somewhat less than that. But what did the bank actually pay for the property or what was the mortgage balance when they took it over. Many times what the bank has in the property is much less than the listed price.

Example 1: 123 Main St - highest market value $250,000, brokers listing price $240,000, bank costs through foreclosure $165,000. In this example the property needs only minor cosmetic work and can be turned over quickly so you offer $210,000 and will make a nice $25,000 profit. But what about the other $45,000?

Example 2: 729 New St - highest market value $195,000, brokers listing price $190,000, bank costs through foreclosure $102,000. This is another property with minor repairs; you offer $98,000 and close at $102,000 (depending on the marketplace you may close a little higher). Using our normal formula we would have offered $140,000 to close at $145,000 a difference in your pocket of +$43,000.

To the bankers its' a numbers game they are building a backlog of properties to move so you may have some good opportunities in your area. Work with your real estate agent or title company do a little more research into what all parties have in the property and you may make some bonus money on top of your planned profit.

Bill Carey with over 30 years in real estate sales, investments, and home building offers a unique perspective to the buying and selling process of residential real estate for F*R*E*E consumer information and reports log on to http://www.charlottencexecutivehomes.com/ and see "Insider Real Estate Secrets Revealed" ...a must-read for Home-Owners and Renters! It's a F*R*E*E 12-lesson e-course covering more than 20 topics exposing the realities behind buying and selling a home. It Could Make(or Save) You Thousands of Dollars

See http://www.billcareyrealtor.com/ and sign up for our monthly e-newsletter with tips for buyers, sellers, home owners and soon to be home owners.

Reality TV Goes Flipping Over Houses

2005-12-01T22:34:00.000-05:00

According to The Sun News ""Flip This House" - a round-the-clock makeover program that follows real estate flipper and Charleston native Richard Davis - has been in town since Saturday filming as Davis renovates a home at 6503 Ocean Blvd."

"Today, he will show his makeover magic as the show hosts potential buyers in an open house. The "cat-puke" brown is now a light gray. The tiled floor is now hardwood."

"And the home that was rented as three separate units is an updated single-family home. There's new plumbing and a new roof."

""The bones were in great shape," Davis said. "The skin was horrible.""

"Davis flipped his first home in Charleston in 1987. As a real estate appraiser for the Charleston County Assessor's Office, he bought a house for $27,000. He made $12,000 of repairs and sold it for $68,000. After that, it became his full-time business."

"These days, A&E follows his small company, Trademark Properties, to show viewers how to buy, repair and sell a home in a week. The program started in July and has featured homes only in the Charleston and Greenville areas. This is the first one on the Grand Strand."

"Flipping is not uncommon in the local market, where homes have appreciated 20 percent in a year. But Davis says he doesn't just buy and sell. He adds value."

""What I do is reposition bad assets," he said. "The key is adding value. These people who buy contracts at preconstruction prices and hope it goes up, that is pure speculation. You're not adding value.""

"Davis says he never buys a home with a sign in the yard. He and his team scour the neighborhoods of South Carolina, looking for forgotten properties. Then they research the property, hunt down the owner and make an offer."

"So how much did he pay for this home? Davis won't say, so you'll have to watch the show. He'll reveal the purchase price, the amount of money put into the home and the sale price."

"The show is completely unscripted, Davis said. It's designed to show the real-life money gains and mistakes of house flipping. In one episode, the crew had to come up with some last-minute money to complete repairs."

"The show will air on A&E in mid-December."

Condos on the rise

2005-11-30T20:33:00.000-05:00

If this doesn't make you think back to the late 90's, err the stock market craze, I don't know what will.

According to the Orlando Sentinel.

"If you're shopping for a condo, the best deals are to be found in foreclosures or resales by investors."

"I bring it up as I drive around Orlando, looking at the increasing number of "For Sale" signs in front yards, taking note of those that have had their "Price reduced.""

"The number of homes on the market is at an eight-year high. We are shifting from a seller's market to a buyer's market. The speed at which this is happening is remarkable, given that interest rates remain low."

"But despite all these warning signs about a slowdown in housing, downtown condo builders remain bullish."

"We've got thousands of inquiries!"

"We can't build them fast enough!"

"It all sounds good. But what is it that makes condos immune from market forces affecting the rest of the housing market? My guess is that as we saw during the dot-com bust, speculators hate to let go of a good thing."

"Downtowns in neighboring St. Petersburg and Tampa have more than 50 condo projects planned. Even cities such as Sarasota and Jacksonville are planning for thousands of condos."

"Miami-Dade has a staggering 70,000 units in the works."

"Are there really enough empty nesters, second-home buyers and young professionals to go around in the next few years?"

"There is an army of speculators and investors who think so."

"Buying Florida condos at "pre-construction" prices has become a national phenomenon. Try typing "preconstruction" and "condos" and "Florida" into an Internet search engine and see all the Web sites devoted to helping you get rich."

"Condo-flipping is the new day-trading. History says that this creates an artificial demand and jacks up prices."

As inflated as the cost of traditional housing has become, at least that market has one toe dipped in the waters of Lake Reality. A much larger percentage of buyers plan to actually move into their purchase and stay awhile. Or they plan to put big bucks into restoration before flipping the property. This requires a commitment and more thoughtful analysis.

"This is why you see the traditional housing market begin to cool while the frenzied condo market booms on. A lot of people who put down contracts on condos have no intention of ever making the first payment."

"If that day comes because they can't flip the units, they're in big trouble. So are the developers and lenders."

"The longer it takes for a correction to occur, the more painful it becomes. And we have been through painful condo corrections before."

""When I came here in 1975, they gave you a Cadillac if you would buy a condo in Pompano Beach," says economist Hank Fishkind."

"If Orlando's market is out of whack, it will correct itself in the normal manner -- when growth and price adjustments produce enough buyers actually looking for a place to live."

Real Estate Investing - Changing Zoning Laws

2005-11-30T19:32:00.000-05:00

Real estate investing may seem easy. It has been. The keyword is 'has'. Now communities all across the country are changing zoning laws to make it harder to buy and sell house on the fly.

Here's an article from the November 30, 2005 Morgan County Citizen.

Citizen inpute aids zoning

Last spring, after months of public meetings, painful work sessions, and general outcry, the Morgan County Board of Commissioners approved sweeping and important changes to the county's Zoning Ordinance. At the same time, commissioners instructed the county planning staff to continue to research, with the help of an ad-hoc citizens' committee, a number of topics that were not covered in the new regulations.

That research was completed and presented to the Board of Commissioners in September, who recommended that the resulting report, entitled "Proposed Zoning Revisions," be forwarded to the Planning Commission for review.

"I feel comfortable that we have a plan that addresses some of the needs of our [comprehensive] plan and also reflects the desires of the committee," said local resident Charles Baldwin. "I don't know if this is the perfect plan, but it's a good start."

Changes related to "Proposed Zoning Revisions" were recommended for approval at last month's regular Planning Commission meeting, and will now go back to the Board of Commissioners for final review. In response to citizen input, the planning board approved changes to the Mixed Use Zoning Districts, changes to the Lakeshore Zoning Districts, and a new portion of the zoning ordinance relating to Workforce Housing.

The discussions surrounding the potential implementation of a Workforce Housing requirement into some portions of the Zoning Ordinance were among the most contentious last winter and spring, as citizens and developers weighed in on the suggested changes at that time. As a result, all Workforce Housing language was scrapped in the final ordinance adopted last March. Workforce Housing is defined as homes that are affordable to the working population'to teachers, and firemen, and policemen, and civil servants, for example. The suggested regulations are in the form of an incentive to builders, rather than law.

"[Building Workforce Housing] is a choice, rather than a requirement," said Morgan County Senior Planner Allison Moon. In the new recommendations, builders will have the ability to increase their lot yields by 15 percent in exchange for offering 15 percent of their units at a Workforce Housing price, which for Morgan County is defined as 80 percent of the median household income, times a factor of three. In today's market, that would result in a house price of approximately $126,000.

Housing developed under these regulations would be regulated by the county for a period of two years, and buyers selling their Workforce Housing within 24 months would not be able to realize any significant appreciation of the home, in an effort to deter investors from purchasing and "flipping" these properties. Owners would also have permission from the county in order to be able to rent their Workforce Housing to others.

The new Workforce Housing regulations do not make provisions for any type of county housing authority, so income requirements for those moving into future Workforce Housing were eliminated.

"I don't know if this Workforce Housing will work as projected...there may be changes down the line," said Moon. "But I know that if we do nothing, nothing will change."

The Planning Commission also recommended changes to the Mixed Use Zoning Districts in the ordinance. While the county chose not to bring back the Planned Unit Developments (PUDs) that were so popular with developers, they did modify the MXD zones that replaced the PUDs. The county will have three MXD zones-MXD1 will describe only the Stanton Springs technological park development on the western edge of the county. MXD2, while still technically existing, will not describe any current properties in the county, and will instead be reserved for use in the future. And MXD3 will be the generally applied Community Mixed Use.

The PUDs, as previously permitted, were not appropriate for this area, said Moon.

"[PUDs] were a little too prescriptive, and allowed densities that were too high for Morgan County...we've tried to fix that [by implementing MXD zones], while still allowing the developers some flexibility," added Moon.

Morgan County Commissioners are expected to discuss the proposed changes at their regular meeting on December 6.

Flipping Houses - Beware Of Speculators Ripping You Off

2005-11-27T21:53:00.000-05:00

While flipping houses is the rage, right now, you need to beware of what is going on before you buy. This article appeared in the November 26, 2005 The Buffalo News. The easiest way to put it, is let the buyer beware.

"Scott Rocheville learned a hard lesson about real estate last year when he purchased a four-unit property on Buffalo's East Side."

"The listing in the online auction site included a picture of what he thought was a pretty yellow house, well-kept with a beautiful, manicured lawn and three of the four units already rented."

"What the Boston, Mass., police officer-turned-investor found after buying it sight-unseen was quite different. In fact, the Web site's fine print warns "image does not depict actual asset.""

""From the get-go, I was thousands of dollars in debt," he said. "I had to hire a lawyer to go to Housing Court with me and to evict the tenants who weren't paying rent. There wasn't any electricity coming into one of the homes, although a person had been living there for months.""

"But Rocheville wasn't the only victim. In cases like these, flipping - buying low-priced property and quickly selling it at an inflated price without making improvements - has helped create some of Buffalo's most distressed neighborhoods."

"The story is similar in Ohio, where illegal flipping has spread from Cleveland to its first-ring suburbs and officials have begun cataloging problem properties."

"In Baltimore, officials established a Flipping and Predatory Lending Task Force five years ago. But after modeling its anti-flipping effort on Baltimore's program, Buffalo now has a weapon that other cities lack: Hilbert College students are building a computerized database to identify flippers and flipped properties."

""You can type in a name, and charts can show multiple sales and vast changes in selling price," said Tim Parisi, a Hilbert senior majoring in economic crime investigation."

"The new system will help prosecutors and Housing Court officials act more quickly. One company, for instance, had bought 66 abandoned houses and quickly resold many at inflated prices before more than a year of court activity could drive it out of Buffalo, said Michele Johnson, a task force member. The new system, which is computerizing now-separate city, county and state property and housing code records, will enable officials to zero in on such companies in as little as a month, Johnson said."

"Buying a house and reselling it for a profit, even a big one, is not illegal. Such flipping becomes illegal when it involves mortgage fraud, predatory lending to buyers not financially able to take on the mortgage, or fraudulent advertising on eBay and other online auction houses, said Assemblyman Sam Hoyt, D-Buffalo, task force co-chairman."

"Lured by the ads, Rocheville decided to get into the landlord business so he could cut back on his work week and spend more time with his children."

""Real estate here in Boston is ridiculous," he said. "I looked around, and prices in Buffalo were good, and I saw an opportunity to have some rental property to make some money.""

"He hasn't abandoned his property, but said, "It's become a black hole for me.""

"City records show D&N Properties bought the property for $14,000 in November 2004 and quickly sold it to Rocheville for $30,000, doubling its money in less than a month. On his first visit, Rocheville found housing code violations, only one of the three tenants was paying rent, and the house needed major repairs."

"Rocheville, who doesn't want the site identified because he doesn't want to invite vandals or scare off potential tenants, has been working with city officials and said he remains committed to repairing the apartments."

"Cities across the country are trying different approaches to keep such properties from becoming eyesores or ensnaring unsuspecting buyers like Rocheville. Cleveland has begun logging its problem properties. So has Baltimore, which used the data to close loopholes and prosecute unscrupulous investors."

"Baltimore's task force has had to search records manually, but since August, Hilbert students have been using Analyst Notebook, software developed for tracking white collar crime, to build a computerized database, said William J. Haslinger, the Hilbert professor supervising the project."

"The database will include the location of properties sold, dates of the sales, the seller and buyer and the sale price. The students will turn the data into charts that will spotlight properties sold over a short period of time with substantial changes in price."

"Unscrupulous speculators aren't the only problem, task force members say. They also point to the federal Department of Housing and Urban Development, online auction houses and the city's auction process itself."

"Lynch outlines the problem: A person buys an inexpensive HUD home with a government-insured loan, then defaults. HUD forecloses, but if it can't sell the house, the property goes on the open market, where it might be bought for a pittance. The new owner then lists the property online, and the flipping begins."

"That was the case with 41 Loepere St., purchased online by a California resident. After being flipped a few times, Lynch said, the property went back to HUD for just $10. "HUD is aware of the problem and is working with us," Lynch said. "There's a growing number of HUD houses that are being sold to investors.""

"Asked about HUD's role, a spokesman noted the agency had pushed for establishing the task force and has a member on it."

Fixer Uppers - Build Your Own Equity

2005-11-24T21:48:00.000-05:00

1.Newer Homes Less Than 5 Years Old

Abandoned, neglected in foreclosure will need minor repairs repainting, carpet cleaning. Some appliances may be missing. The best way to increase your equity is based on how much of a discount is the bank willing to take to unload the property.

2.Good Neighborhoods Estate Homes

Homes being sold through attorneys' in estate sales or probate. The family homestead where Mom and Dad have downsized, have past retired or moving to care facilities. Normally will be out of date interiors, kitchen, baths, flooring and decorating solid homes well cared for may need a complete overhaul. Many times family members just want to get rid of the headache.

3.Auctions

Not the best place to find a good deal unless you are very knowledgeable and experienced about the process in larger cities and counties the professionals rule, but in the more rural areas you may stand a chance. To get experience go to several auctions and bid to yourself to see where you stand. Inspect what you may be bidding on pick 3 or 4 homes know them inside and out. Be conservative in your bidding and have good solid repair estimates.

4.Realtor Listed Homes That Don't Sell

On the average over 50% of homes on the MLS do not sell during the 1st listing period. Homes that have had a real estate sign on the lawn for 9 - 12 months or longer may be prime candidates. There is a problem usually condition or price. The condition problem is where you can get the deal you want. Check with local real estate agents let them know what you are looking for.

5.Abandon & Vacant Homes

These homes offer the greatest chance of quick equity. If you can find the owner who is usually out of state, you can get a great deal. Most times the owners moved away and are surprised you found them. They dont want anything to do with the property and are happy to get off their backs.

6.HUD and Government Repo's

HUD has great programs for home buyers you can go on the website www.hud.gov under homes for sale you can find HUD and other government reposed properties. They also offer financing to qualified buyers, all offers must be through a HUD registered real estate agent.

Bill Carey offers insights to the buying and selling process of residential real estate for F*R*E*E information and reports see http://www.billcareyrealtor.com/ "Insider Real Estate Secrets Revealed" ...a must-read for Home-Owners and Renters! It's a FREE 12-lesson e-course covering more than 20 topics exposing the realities behind buying and selling a home. It Could Make(or Save) You Thousands of Dollars

More on flipping houses and income taxes

2005-11-17T07:02:00.000-05:00

After the original article was published here on the blog some comments came up about the how taxes are figured when holding property short term. This article does a real good job at explaining the tax consequences.

Investing In Real Estate, Flipping Houses, and Income Taxes

Understand the tax consequences of flipping houses, rehabbing houses, and how to defer taxes with the 1031 Exchange before you get into real estate investing. Problems arise when real estate investors don't follow federal and state tax laws. This is why you need professional advice. Although I am not a tax advisor, here are some common mistakes beginning real estate investors make by not understanding tax liabilities:

Flipping Houses

The reason flipping houses is a mistake for some beginners is that they don't know the income tax consequences. One problem with flipping houses, or selling too many properties too quickly, the IRS could say that your real estate business is your trade, subject to ordinary income and self-employment taxes.

Self-employment tax, a social security and Medicare tax primarily for individuals who work for themselves, is similar to the social security and Medicare taxes withheld from the paycheck of most employees. The self-employment tax rate costs you 15.3% of your profits. (However, this may provide retirement benefits.)

Rehabbing Houses

Another common mistake that beginning investors make is selling a property after holding it for almost a year. Some rehabbers work part time on a fixer and take six months to get the house ready. Add on two months to sell with a 60 day closing, and theyre up to ten months. To take advantage of the low 15% capital-gains tax rate, you must keep the investment property for at least a year before selling. If you sell before a year, your tax rate, the usual capital gains rate of 35%, could eat up a significant amount of your profits.

If you're rehabbing houses, be patient. You could save thousands in taxes by holding your property just a few more weeks.

1031 Exchange

However, the Internal Revenue Code provides real estate investors away to defer capital gains taxes indefinitely. Section 1031 of the Internal Revenue Code provides a tax-free exchange. Also known as a "like-kind" exchange, this code allows you to sell a business or investment property and defer capital-gains taxes by immediately reinvesting the gains into a similar piece of property. The key, replacing a business or investment with similar property, means that no gain gets paid to the investor. Any profit taken out of escrow gets taxed. This means that beginning investors might take out a portion of the profit after they carefully explore their tax liabilities. In other words, talk to an accountant and find out what your tax would be according to your current usual income. Many business owners take advantage of this because they have many business deductions.

The big mistake beginning real estate investors make doing a 1031 tax-free exchange, taking possession of the profits, voids the tax deferment. You must declare the sale of your property to be a part of a 1031 exchange before you sell the property. Then you have the money placed in a trust account held by an intermediary until you purchase the new investment property. You have 45 days to identify a replacement property and 180 days to close on the new investment. You can't purchase a primary residence or a vacation home with funds from an investment property and defer taxes in a 1031 exchange.

The best advice for beginning real estate investors: Talk to an accountant.

Would you be better off making extra money, even if you must pay taxes?

Jeanette Fisher teaches beginning real estate investors her system to make more money fixing houses with Design Psychology. For a free ebook "Design Psychology for Selling Houses," see http://www.doghousetodollhousefordollars.com/

Home Equity Line Of Credit 101

2005-11-11T05:17:00.000-05:00

If you must borrow money you may find that a home equity line of credit might be your best bet. They can provide large amounts of cash at very attractive interest rates. They may also get you tax advantages that are unavailable with other kinds of loans.

Let's first take a look at some of the advantages of a home equity line of credit:

1. You can use the loan to draw on the money only as you need it

2. Most home equity lines of credit have little or no closing costs.
3. You only need to make interest only loan payments which means lower monthly mortgage payments than with a fixed interest rate loan.
4. Variable mortgage interest rates are usually much lower starting rates than with fixed interest rate loans.
5. A home equity line of credit works much like a checking account, with the limit determined by the amount of equity you have in your home.
6. Interest may be tax deductible.
7. The interest rate paid on the average home equity line of credit is generally lower than the interest rate you would pay on the typical credit card..
8. You can use the remaining unused balance of the equity line as an emergency fund.

A home equity line of credit is a contract transmitted between the two parties. Both parties agree to the line of credit amount and the annual interest due to the lender at the end of the term.

You will usually have to put your home up as collateral to get a home equity line of credit. This can put your home at risk if you are unable to make you monthly payment. These loans also have a large final payment which could lead you to borrow more money to clear off this debt. If you sell your house while the loan is still active you are usually required to clear off you line of credit at that moment.

The real catch comes in trying to get a home equity line of credit. Quite often they require you to prove that you have previously been able to pay back a previous line of credit. Basically, nothing more than a run around trying to keep you from being able to qualify for the cheaper rates. To help out, you can show that you are trustworthy and able to pay back your line of credit in full every month is to pay off your credit card each month while in college. Granted this is rather difficult. Having a good credit score can be a real benefit toward getting a home equity line of credit. People do manage to qualify for home equity lines of credit so don't think that you can't. Put the power of positive thinking in your pocket and use it.

Later,

Thomas Williams

Sale Of A Personal Residence - The New Rules

2005-10-31T21:48:00.000-05:00

For this article I go to the pros in the field of income taxes. Robert Flach has written an article on the tax implications of selling your own personal residence. Here's Robert's article:

Based on comments and questions I have received from clients and readers it appears that there is still some confusion about the rules for taxing gain on the sale of a personal residence. Many people think the "old rules" still apply.

THE OLD RULES:

In order to postpone paying income tax in the current year on gain from the sale of your personal residence you had to "buy up" - purchase, or build, a new home that cost more than the sale price of your old home - within 2 years of the date you closed on the sale of your old home. The tax was deferred for as long as you continued to "buy up", or until you sold your last home.

Homeowners age 55 and older could make a once-in-a-lifetime election to exclude up to $125,000.00 in gain.

These rules no longer exist!

THE NEW RULES:

Thanks to the Tax Reform Act of 1997, if you sold your personal residence after May 6, 1997 you can totally exclude from income tax up to $250,000.00 of gain if single, or $500,000.00 if married, regardless of your age at the time of the sale, if during the 5 years prior to the sale you owned and lived in the home for a total of 24 months (they do not have to be consecutive). This exclusion is not a one-time election - it is available once every 2 years.

If you are married and sell your home, which you and your spouse owned and lived in for 3 years, and realize a gain of $475,000.00 you do not have to pay any income tax on this gain. If the net gain is $525,000.00 you will only pay tax on $25,000.00 at the appropriate capital gains rate.

If you do not own and live in the home for a full 24 months you may still be able to exclude some, or all, of the gain if you had to sell the residence because of certain IRS-approved special circumstances.

You should still keep the original closing statement for the purchase of your home for as long as you own it, and maintain documentation on all capital improvements made to the home over the years just in case.

Robert D Flach is a tax professional with 34 tax seasons of experience preparing 1040s for individuals in all walks of life. He writes THE WANDERING TAX PRO weblog (http://rdftaxpro.tripod.com/weblog), the free monthly online newsletter STUFF AND SUCH (http://rdftaxpro.tripod.com/stuffandsuch) and the website http://www.robertdflach.net, with a wealth of tax planning and preparation advice and information. He also writes and publishes THE FLACH REPORT, a quarterly print tax newsletter. The above article is taken from a posting to THE WANDERING TAX PRO.

Flipping Houses Or Rental Property: How To Invest?

2005-10-25T20:46:00.000-04:00

This is the first thing you need to decide upon before you start doing any investing in real estate. You need to decided what method of investing you plan to do, flipping houses, rental property, etc. Each method has it's advantages and disadvantages and you need to choose which method would work best with your personality, the amount of time you have available, and your investment goals.

In this article I will take a look at the advantages and disvantages of each method so you can decide which method would work best for you.

Flipping houses advantages:

1. Allows you to make money from a property, in the short term, without having to deal with tenants.

2. Can have much smaller costs involved to buy the property, possibly zero costs.

3. Keeps all costs low as the buyer you sell the property to will be doing any repair work that is necessary on the property.

Flipping houses disadvantages:

1. No long term income. If you quit flipping houses, you quit making money.

2. Higher taxes. If you don't hold onto the property for at least one year than it gets considered as regular income. If you are in a high income bracket all the income generated from the sale will be taxed at your regular tax bracket. This alone could dramatically lower your net income.

3. You need a constant stream of reputable buyers. For each house you intend to buy you need to have someone that is going to buy the house from you. You need to make sure that you are in control of the deal and that the buyer has the money to buy the house. If you don't do this you will probably find the deal falling apart, more often than not, and this can then end up costing you more money in interest. The quickest way to flip the house is to have both closings one behind the other. If the buyer steps out then you will be left standing with the property, and have to pay interest on the loan until you are able to find another buyer.

4. If you decide to do the repair work and then sell the property, you will have to wait for the contractors to be able to get around to doing the job. This will add more time and more expense, cutting into the bottom line.

Rental property advantages:

1. Long term income from rents. This is constant income. You can quit buying/selling properties and still have income coming in.

2. Long term property appreciation. This is figuring that you are planning to be the owner of the property for numerous years to come.

3. Smaller tax impacts.

4. Better opportunity for getting seller financing.

5. Tenants can pay the loan for you even while you are doing repair work to the property.

6. Less opportunity for being the victim of vandalism. Vacant properties have the tendency of being hit by vandals. With rental property, it will almost always have at least one tenant living in the building. This will help keep vandals away.

Rental propert disadvantages:

1. Tenants. This can be the biggest annoyance with owning rental property. If you have the right tenants this can making owning rental property a pleasure.

2. Repair costs. This can cut into the bottom line. Then again, it is also a tax write-off.

It's all a personal choice as to which method you decide to choose. You can even use both methods, flipping house and taking the money generated from this idea to buy an apartment building.

Over the next several articles I will go more into each method and show you how to go about flipping house or buying rental properties.

Until next time.

Thomas Williams