Market Update

Coordinated Rate Cuts: Central banks around the world, including the Fed, the European Central Bank and the Bank of England, jointly announced a series of rate cuts. The fed funds rate was reduced 50 basis points to 1.5%.  The Federal Reserve led a global coordinated emergency interest rate cut this morning that included the European Central Bank, Canada, UK, Switzerland and Sweden. The Federal Funds Rate was lowered by 50bp to 1.5%, while the discount rate was also cut by 50bp to 1.75%. The joint effort was to ease the economic effects of the worst  financial crisis since the Great Depression.

The coordinated effort helped keep the currency markets in balance – this gave our Fed the green light to cut, without the inflationary concerns from a weaker Dollar. Additionally, the strong Dollar is keeping oil prices in check…much different from the past string of isolated US cuts that led to a much weaker Dollar and skyrocketing oil. And the European Central Bank, which had turned its back on rate cuts (they actually hiked not too long ago) because of its single mandate of fighting inflation, gains cover in making the move to avert a global collapse. Look for more cuts ahead, especially from the ECB and the Bank of England, which both have lots of room to slash rates.

Making the Best Offer to Get the Best Deal

Last month I talked about the 10 steps to buying the right property and finding the right rental property. So now that you know how to find the right property, we need to talk about how to put in the best offer on the property in order to get the best deal.

Once you have chosen the property you need to first determine the purchase price that will make a great deal for you as the buyer.  You can determine this by looking at comparable sales prices.  Your Realtor should be able to put together this information from the MLS and public records.  We are finding in this market most sellers are negotiating from their asking prices by an average of 8-12%.

Review sales history…how long has the property been on market and what did the seller pay for the property?  Although in this market these details won’t always determine selling price, it will sometimes help you to determine the level of motivation of the seller.  Your Realtor should also be able to tell you if this is a short sale, foreclosure sale, or regular sale.  The type of sale will determine your plan of attack for pricing and negotiating to get the best price.  (The difference on these sale types is a whole separate article…watch for that next month.)

Find out if any other offers have been put on property yet…if so, you will be able to get a feel for what the seller will or will not accept, and also be a little more telling as to the seller’s level of motivation.  I keep referring to the seller’s level of motivation…all sales will come down to this, and this is something that can change on a daily basis depending on personal situations.

Once you have reviewed all of this information, you should have a final purchase price you are comfortable with that will give you a good deal on the property.  So, now comes the time to put together the details of the offer with your Realtor.  Different documents will be needed for the different sale types (again, more to come on that next month), but the basic terms will remain the same.

In most circumstances when we talk about getting a good deal, it means getting a great price on a great property.  In order for a seller to come down to the lowest price possible, you have to make the offer as strong as possible in other terms…no finance contingency, quick closing, as is condition, good earnest money deposit amount to show commitment to transaction, and both parties paying their own closing costs or better.  When all of these terms are reviewed together, a realistic seller should be happy to sell to you as the buyer.

Dana McIntosh, REALTOR
dana@eimersgroup.com
800-775-5914 Main | 850-428-0243 Cell

Economic woes from Wall Street to Main Street…wow, what a mess…

Well the housing market decline and everything attached to it, has reared its ugly head now from Wall Street to Main Street. And everyone’s going to feel some pain. Home prices still searching for stable ground, 401K’s in the trenches, the job market in a spiral, etc. Seems like a never ending stream of dour news. But…there is light emanating from the end of the tunnel. Thankfully, though some may disagree, the government has stepped in to at least try revive our once vibrant economy.

With all of this being said, it’s time to take a good look at the other side of the equation. The side of opportunity that is readily apparent for those who have vision beyond the current economic whirlwind in which we now reside. But this will pass and better times will prevail somewhere down the road. And for those who maintain this vision and see value for what it really is, whether stocks or real estate, the rewards should be very handsome over the course of time.

 

For the here and now, we still have a lot of clean up work to be done. And it won’t be easy by any means. But it can and will be done. Now, I’m no economic expert by any means, but I do have a few suggestions that I see as viable jumpstarts to help stem the slide we’re currently in.  So if anyone has ideas, suggestions, please feel free to share them with myself at Mark@EimersGroup.com or anyone else here at Eimers Group. If nothing else, it sure does help to vent. So here are a few of my suggestions:

 

1)   How about a 1 year moratorium on Capital Gains Taxes including gains on Real Estate and Equities purchased within that one year window. Any of these purchases would be recognized as free from Capital Gains Tax as long as the sale occurs outside of the one year window. Note that the sale would have to take place outside of the one year window to discourage trading within the tax free time frame. And this should encourage more investors to adhere to the buy and hold theory. 

 

2)   One of the biggest, if not the biggest, culprit behind the wave of defaults and foreclosures in the real estate market has been the free-wheeling , foot loose and fancy free world of finance over the last handful of years. Buyers purchasing beyond their means based on the temptation of ARM financing that was the enabler. Credit markets were open to just about any takers who had a pulse and credit checks were no longer a qualifier, but a determining factor on the initial interest rate to be paid.  Then came the reality…ARM’s, or Adjustable Rate Mortgages, began to reset with the teaser interest rates gone. So the best hope was to refinance…yet the home could no longer appraise at the necessary value to enable a refi. So the owner is now stuck with a whopping increase in house payment on a house that is no longer worth what he paid. In other words, upside down. And to make matters worse, the housing market continued to head south as more investors and upside down owners defaulted and walked away from their property. So now you have this two-headed monster that has encroached onto Wall Street infecting the lending institutions that encouraged the chaotic lending that began the cycle. SO…..I suggest that we need to try to keep owners in their property and slow the defaults on real property. And one way to do so would be to freeze all ARM rates at a number established by the Treasury and Federal Reserve and covert the loans to fixed rate long term notes. And this number would have to be no more than the teaser rate that enabled owners to purchase in the first place. Maybe, just possibly, this could slow defaults and we could start working through the credit mess from the bottom up.

 

3)   With the Treasury and Federal Reserve freeing up capital for the lending institutions, somehow some of this capital needs to be earmarked for the mortgage market. And I don’t mean to clean up the mess driven by the greed on Wall Street. I’m talking about this capital flowing downhill to the Every Day Joe in the form of very low rate mortgage loans that would enable real, qualified buyers to enter the market.

 

4)   Wake up Fanny Mae to the realization that we need more FHA financing available to the Jumbo product to help clean up some of the mess created by investors and second home owners who overbought and are now left holding the proverbial bag. So in  a nutshell, increase the FHA Jumbo numbers to realistic numbers that would entice qualified buyers to come off the fence and help clean up some of the overpriced inventory that exists in many markets across the country. And even though there has been an upward adjustment of the FHA Jumbo product, the number still isn’t nearly enough. With rigid qualification standards and favorable rates, I believe we’d see quite a bit of high end property begin to filter from the market into the hands of stable ownership.

That’s my quick, down and dirty take along with a few suggestions. Again, feel free to let me know if you agree or disagree with any of these ideas. I can take the good and the bad. Thanks and best of luck to us all.

Mark Evans, REALTOR
mark@eimersgroup.com
850-837-8880 Office | 817-637-2453 Cell

Property Manager…or Not

As an out of state rental property owner, I can relate some of pros and cons of hiring a property management company to oversee your investment and maximize revenue.

The first decision you will have to face , as an owner of rental property, is whether to self manage or hire a professional property management company. Some may see this as a no-brainer when faced with the property management fees you’ll encounter in the interview process. Generally for our area at the beach, the number will run from 20%-30% of Gross Revenues. This is revenue that could flow directly to the bottom line net for you as the owner. But at what expense? By this I mean the value of time…your time and the effort you have to expend to secure desirable rentals for your property.

Some owners would rather invest their time and effort to secure their own rentals via the web (VRBO.com, Homeaway.com, etc) and keep the proceeds from Gross Revenues flowing into their own pocket. What is the impact of this approach as it applies to you and your your time? In just about every case, the impact will be time consuming if you want to ensure you maximize your rental revenue flow.

The first item on your agenda will be to secure a marketing website using a popular vacation portal such as VRBO.com. This process includes stating the price of your rental adjusted for seasonality, the terms of the rental agreement, check-in/check-out times, photos, property description, etc. This process is time consuming during the initial registration of your property, then it’s just a matter of maintaining the website.

Next you have to locate a very dependable maintenance company for repair items that are the norm for rental properties. Changing air filters, light bulbs, running toilets, A/C issues, etc. When these issues arise, you must have a dependable company to ensure items are addressed in rapid fashion for your tenants. And you, as the self appointed property manager, will be the point of contact for any repair issues that may occur during the rental period. So be prepared to answer your phone at any time, day or night.

Securing desirable rentals is also very important. And by desirable, I’m referring to tenants that you would welcome back on an annual basis. These are the renters you will want staying in your home and you want to maintain contact to keep them coming back. This is where you have to learn the screening process to find the right tenants. And trust me, the spring breakers are not the clients you’re looking for when it comes to your property. Your screening process must be fine tuned and adhered to or you could find your phone ringing constantly with complaints about your tenants.

I’ll wrap this article with a recommendation based on my experience self managing and using a property manager. Having done both, I would always recommend the use of a professional property manager. They’ll have their own website, have an office staff to secure bookings and handle any issues or complaints. Maintain the property with contracted housekeepers and maintenance staff. They know the local market and will make sure you’re pricing is competitive when rentals may be slower than the norm. Books are maintained by the property manager where they handle all finances including rental income disbursement to the owner and filing of state and local bed taxes. And foremost, they are your eyes and ears at the beach, overseeing a very valuable asset…your beach house.

Mark Evans, REALTOR
mark@eimersgroup.com
850-837-8880 Office | 817-637-2453 Cell