WASHINGTON (February 21, 2014) — Existing-home sales fell in January to the lowest level in a year-and-a-half, but ongoing inventory shortages continue to lift prices in much of the U.S., according to the National Association of REALTORS^®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 5.1 percent to a seasonally adjusted annual rate of 4.62 million in January from 4.87 million in December, and are also 5.1 percent below the 4.87 million-unit pace in January 2013. Last month’s level of activity was the slowest since July 2012, when it stood at 4.59 million.

Lawrence Yun, NAR chief economist, said unusual weather is playing a role. “Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception,” he said. “Some housing activity will be delayed until spring. At the same time, we can’t ignore the ongoing headwinds of tight credit, limited inventory, higher prices and higher mortgage interest rates. These issues will hinder home sales activity until the positive factors of job growth and new supply from higher housing starts begin to make an impact.”

The median existing-home price for all housing types in January was $188,900, up 10.7 percent from January 2013. Distressed homes — foreclosures and short sales — accounted for 15 percent of January sales, compared with 14 percent in December and 24 percent in January 2013.

Eleven percent of January sales were foreclosures, and 4 percent were short sales. Foreclosures sold for an average discount of 16 percent below market value in January, while short sales were discounted 13 percent. Total housing inventory at the end of January rose 2.2 percent to 1.90 million existing homes available for sale, which represents a 4.9-month supply at the current sales pace, up from 4.6 months in December. Unsold inventory is 7.3 percent above a year ago, when there was a 4.4-month supply. A supply of 6.0 to 6.5 months represents a rough balance between buyers and sellers.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage slipped to 4.43 percent in January from 4.46 percent in December; the rate was 3.41 percent in January 2013.

NAR President Steve Brown, co-owner of Irongate, Inc., REALTORS^® in Dayton, Ohio, said that in addition to disruptive weather, higher flood insurance rates are impacting the market in areas designated as flood zones, which account for roughly 8 to 9 percent of sales. “Thirty percent of transactions in flood zones were cancelled or delayed in January as a result of sharply higher flood insurance rates,” he said. “Since going into effect on October 1, 2013, about 40,000 home sales were either delayed or canceled because of increases and confusion over significantly higher flood insurance rates. The volume could accelerate as the market picks up this spring.”

Congress is considering legislation to halt new flood insurance rates so the Federal Emergency Management Agency can complete an affordability study and determine the full impact of the law.

The median time on market for all homes was 67 days in January, down from 72 days in December and 71 days on market in December 2013. Short sales were on the market for a median of 150 days in January, while foreclosures typically sold in 58 days and non-distressed homes took 66 days. Thirty-one percent of homes sold in January were on the market for less than a month.

First-time buyers accounted for 26 percent of purchases in January, down from 27 percent in December and 30 percent in January 2013. This is the lowest market share for first-time buyers since NAR began monthly measurement in October 2008; normally, they should be closer to 40 percent.

All-cash sales comprised 33 percent of transactions in January, up from 32 percent in December and 28 percent in January 2013. Individual investors, who account for many cash sales, purchased 20 percent of homes in January, compared with 21 percent in December and 19 percent in January 2013. Seven out of 10 investors paid cash in January.

Single-family home sales fell 5.8 percent to a seasonally adjusted annual rate of 4.05 million in January from 4.30 million in December, and are 6.0 percent below the 4.31 million-unit pace in January 2013. The median existing single-family home price was $188,900 in January, up 10.4 percent from a year ago.

Existing condominium and co-op sales were unchanged at an annual rate of 570,000 units in January, and are 1.8 percent above a year ago. The median existing condo price was $188,700 in January, which is 13.0 percent above January 2013.

Regionally, existing-home sales in the Northeast declined 3.1 percent to an annual rate of 620,000 in January, and are also 3.1 percent below January 2013. The median price in the Northeast was $241,100, up 6.6 percent from a year ago.

Existing-home sales in the Midwest dropped 7.1 percent in January to a pace of 1.04 million, and are 8.8 percent below a year ago. The median price in the Midwest was $140,300, which is 7.6 percent higher than January 2013.

In the South, existing-home sales declined 3.5 percent to an annual level of 1.95 million in January, but are 1.6 percent higher than January 2013. The median price in the South was $161,500, up 9.4 percent from a year ago. Existing-home sales in the West dropped 7.3 percent to a pace of 1.01 million in January, and are 13.7 percent below a year ago. Sales in the West are attenuated by tight inventory in many areas, pushing the median price to $273,500, up 14.6 percent from January 2013.

The National Association of REALTORS^®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

A new report is out showing average vacancy rates in the Muskegon, Holland and Grand Rapids area of 3%. That means, only three units out of every 100 are vacant. The report included over 14,000 units in the three county area. What does this mean to real estate investors and landlords? Well, first, it proves that what most Rental Property Owners Association members have been reporting anecdotally is spot on. Most RPOA members report that they have no vacancies or at least have a waiting list of prospective tenants for their units.

The rental market is alive and well! This likely means that demand will further push rent rates in the upward direction but at a measured pace. Higher rates me less affordable housing. This will result in an increased problem for those agencies looking to find housing for the low income or “risking” tenant.

Several new apartment building projects are in the works for Grand Rapids. This will absorb some of the demand but there are always families looking for something other than an apartment, e.g. single-family home rentals. Investing in rental property seems to be a good thing—even more than usual. The RPOA also receives calls from executives moving into town looking for single-family homes to rent on a six-month basis while they look for locations to buy or build. Most of these requests have stipulated their preference for locations in the Forest Hills School District.

With the slow but continued improvement in the economy and job market, the RPOA expects things to get even better for the industry. For a more detailed analysis of what’s in store for the 2^nd quarter of the year.

Is Now the Time to Refinance?

Ok, so interest rates are falling since you took out your original mortgage, but before you jump on the “refinancing bandwagon,” understand that refinancing your mortgage will cost you time and money in order to save in the long run. Be prepared to crunch a few numbers and weigh your options and long term goals before determining if refinancing is truly in your best interest.

Number Crunching and Saving Money

The likelihood of saving money can be very good if the interest rate for your current mortgage is high. If your rate is 1.5% more than today’s rates or higher, then it is quite likely you will save money by refinancing. If you have an ARM, then you will want to compare the lifetime caps of your mortgage and today’s ARMs to determine if your rate is high enough to justify refinancing. Also, the likelihood of saving money greatly increases the longer you plan to keep the property – typically, at least five years.

The best way to determine if you will benefit by refinancing is to determine how long it will take you to recoup the costs of refinancing. Start by calculating all the costs associated with refinancing, such as points, loan fees, appraisal, title insurance, prepayment penalties, etc… For simplicity, let’s say that the total cost to refinance is $3,000 and it reduces your monthly payment by $150. At first glance it appears that you will recoup your costs in 20 months…

Be Careful – this technique is how many mortgage lenders and brokers calculate the savings to make the loan more attractive.

Please note that you will lose tax benefits as a result of refinancing. Remember, interest paid on your mortgage loan is tax deductible, therefore, you cannot properly estimate your recuperation period this way.

To properly estimate your recuperation period, you will need to know your federal tax rate. Once you know your federal tax rate you’ll reduce your monthly payment savings by that rate; for this example we’ll use 28% and reduce the $150 monthly savings mentioned above – yielding a monthly savings of $108. So if your refinance cost was $3,000 then it would take you approximately 28 months to recoup your costs ($3,000 divided by $108).

So, should you refinance?

Well, ultimately the decision is yours and only yours. Only you know your financial situation and what you are comfortable undertaking. But, as a good rule-of-thumb, if you can recoup your costs within a few years, and do not plan on moving within that time frame, then refinance.

If it takes longer to fully recoup your refinancing costs, refinancing may still be in your best interest if you anticipate keeping the property and mortgage for a long time. A recuperation period over seven years may be too risky to justify the costs and hassles. Many things can happen in that time frame – for one, rates could fall even lower.

Refinancing doesn’t have to cost a ton of money – it is possible to find no-cost refinancing or no-point loans. However, these types of mortgages may not be the best long term option, and many have prepayment penalties. Typically, the loans that yield the lowest interest rates require you to pay points. These may require greater up-front, out-of-pocket expenses, but you will benefit significantly in the long run.

Depending on your circumstances, some loans will allow you to amortize your expenses over the term of the loan. Carefully investigate this option, as it may not provide the greatest overall benefit and you may be required to pay interest on the amortization. If your overall goal is to simply lower your cash flow, then this may be an option. However, keep in mind that this approach may not have the same benefits in the long run.

Anyways, if you have decided that refinancing works for you, then make sure you shop around. Also, check your existing mortgage to make sure you will not be charged a prepayment penalty – or at least find out what it may be so that you can factor it in with your costs.

As you should now realize, the amount you save is going to be greatly affected by your costs, and every lender and broker has varying fees. So be sure you ask all the right questions regarding the costs to you, and heed caution if someone says that there are “no” costs to you. Remember, nothing in life is free, especially mortgages.

As real estate values rise nationwide and many properties listed for sale are being fought over by investors and home buyers, it seems that, once again, investment property buyers are paying outrageous prices for properties. Anyone recall this phenomenon in 2004, 2005 and 2006?

An “outrageous price” is one that is way too high considering the cash flows the rental property can generate. These negative cash flow properties are rarely profitable investments, compared with other investment options a buyer could have chosen.

Experienced real estate investors only buy properties that are cash-flow positive — based on conservative estimates — and skip those pesky negative cash flow deals. Note that those negative cash flow properties are typically the fancy prize properties in town; you know, the location, location, location properties.

Penciling out a deal

The main reason investors keep paying these high prices is because 95 percent of them acquire properties without doing any financial analysis to determine whether the property will actually produce decent investment returns. Instead, they hope that a property will go up in value, they’ll sell it and make a bundle. Unfortunately, that scenario rarely happens.

As an example, let’s say an investor buys a $125,000 house by investing cash equity of $40,000 (25 percent down payment plus closing costs and rehabilitation costs) that generates rental income of $1,200 per month. The mortgage plus other operating expenses total $1,015 per month. So the rent less all the expenses leaves $185 of positive monthly income, or $2,220 per year. If we divide this $2,220 annual cash flow by the $40,000 initial cash investment,  it calculates to a cash-on-cash return of 5.55 percent — a pretty fair deal on a decent real estate investment.

Additional perks

Only about half of the properties in a general marketplace would generate positive cash flows and a decent, actual return such as 5.55 percent. In actuality, real estate investing is much more complicated than just penciling out your cash-on-cash return, but that analysis is a good start.

And with that nice positive cash flow, you also will get some extra return yield as a result of the amortization of your mortgage. Plus you probably will get some tax benefits and possibly some appreciation in value too.

Cash flow is king, and if you buy positive cash flow properties, you will feel like royalty each month as your bank account balance builds up and you earn wealth over the years!

Pays a Fair Cash-on-Cash Return

When you buy property you are taking money out of your liquid financial assets – stocks, bonds, CDs – and investing it into a very illiquid asset – real estate. You were earning a rate of return on your financial assets, such as 4 percent or 6 percent, and you should strive to earn a fair cash-on-cash rate of return on your real estate. To do this, you need to pro forma your deals and buy cash flow-positive properties that earn you decent returns – not those prize properties that are negative, negative, negative.

Isn’t Too Risky an Investment

All real estate is extremely high risk. Development of real estate, land, Tenant-In-Common (TIC) investments, private real estate funds, fixer uppers, etc., all have much higher risk profiles than just simply buying a nice established cash flow investment property. In many of those investments, you will never see a dime of your money again because there are just so many things that can go wrong! So if you want to own real estate, consider simply taking fee simple title in your own name – or an entity you wholly own – to the properties you purchase. In addition, you must do the proper due diligence, analyze, test, review reports, etc., to make a lower risk real estate decision.

Doesn’t Require a Lot of Time or Managing

Some properties just require way too much time and management to make them smart investments. Examples include vacation rentals, low quality properties in bad areas, college rentals, etc. Nice boring properties rented for as long as possible to decent credit profile tenants seem to take the least time to manage. In addition, treating your tenants fairly and with respect goes a long way towards keeping good relations with them; and reducing your hassles when there is an issue you need to address. And believe me — there will be issues!

It’s the nice, boring, wholly owned, in good shape, cash flow-positive properties that are the best investments. They are out there for your picking, but it’s not as simple as finding a property on the MLS and buying it.

You need to do some hard work, research, read up, and make smart, educated decisions to acquire the best real estate investments!

By: Leonard Baron

Whether you’re moving into your first business tenancy or your fifth, simple mistakes are often made by even the most savvy business owners. Key actions taken now can save you time and money over the term of your lease, and will help you avoid these common mistakes:

1. Failing to allow enough time to make fully-informed decisions

Running your business takes up all of your time. However, making lease decisions too late can cost you far more in additional payments. Lease agreements typically have notice periods that give you between 3 and 12 months to notify the landlord of your intention to exercise or forego a renewal option. Do your research: Make sure that this property continues to be right for your business, consider the current size of your lease space, the rent level compared to the market, and the amenities the current lease provides.

2. Failing to consider future business growth and space requirements

Lease terms can often be 5 years or more, but tenants usually make decisions based on what’s happening now. Not providing room for future growth could mean squeezing your employees, sacrificing meeting rooms, and a loss of productivity. Consider your business’ projected growth and factor it into future space requirements. Otherwise, you’ll find yourself constantly moving desks and struggling to work in space that’s simply too small.

3. Failing to understand the finer points of your lease agreement

Many people look at their rent and lease term and believe they know all they need to know about their lease agreement. Commercial lease agreements usually range from 10 to 40 pages in length and contain items that can have significant financial impact to your business. Understand these things up front, negotiate the best terms to suit your needs, and you’ll see real savings over the long term.

By Jack Hayes, CCIM

The first thing you do in any investment is to decide what type of investment it will be and what you’re going to do with the property. Will you turn the deal over to another investor for a quick finder’s fee, or will you fix the property up and sell it retail to a homebuyer who will live in it. Maybe you’ll want to keep the property as an income-producing rental, or maybe you’ll create a no money down deal for yourself to live in.

How you plan to complete the deal is commonly referred to as knowing your “Exit Strategy” and is a term used by real estate investors to describe how they plan to sell a property and make a profit.

Know Your Exit Strategy Going Into The Deal

You should always know exactly what you are going to do with a property before you buy it. You’ll also never want to make an offer on a property unless you know exactly what you are going to do with it if the offer is accepted; nor will you ever buy a property and then figure out what to do with it after the fact.

How you go into a deal many times will affect your exit strategy or how you go out of the deal. In other words, if you pay all cash for a property, you may not be able to keep that cash tied up for a long period of time. Therefore, you would either need to flip the property to another investor for a fee, fix the property up and retail it to a home buyer, or refinance the property to get your cash back.

Choosing The Right Exit Strategy

Your exit strategy is based on three main factors. These factors are: your personal goals, the seller’s needs, and the property itself.

Your Goals

First of all, your goals are very important when deciding what types of investments to do. For instance, is your immediate goal to make some quick cash or to build a retirement nest-egg? If your goal is to build a monthly residual income, you’ll have to consider the exit strategies that produce a monthly income, such as Lease Options or rentals. If your goal is to make some quick cash, you’ll have to consider doing some wholesale or retail deals.

The Seller’s Needs

You’ll also need to consider what the seller’s needs are. Is the seller a bank needing all cash or is the seller a private individual simply looking for debt relief.

For instance, if you are looking to lease a property with an option to buy, bank owned properties are not good prospects because most banks are looking to sell for cash, especially when the property needs work.

The Property

Finally, you must analyze what type of investment a property is most suited for. Is the property in a resalable area suitable for selling to a homebuyer, or is the property located in an area that is better suited for rentals. You don’t want to be rehabbing and retailing a house that is in a war zone, for example. Does the property need repairs and are you prepared to have them done?

Don’t worry if you think that deciding on an exit strategy is complicated. Once you know and understand the Deal Quadrants, deciding what to do will be pretty easy.

By: Charlie Bross – Excerpt from the Real Estate Investing Quadrant Success System

The housing crash and the subsequent foreclosure crisis has saddled the United States with an extraordinary level of vacant properties, inflicting heavy costs to many American communities, according to Federal Reserve Board Governor Elizabeth A. Duke.

“In order to see the robust economic recovery we all want, we need to deal effectively with the large volume of vacant and distressed properties throughout the country,” said Duke. “The potential fallout of high rates of vacancy — blight, crime, lowered home values, and decreased property tax revenue — is the same for every neighborhood and community. In some areas, the private market will lead the way, while in others government will have to use precious resources wisely to catalyze recovery.”

As of the first quarter of 2013, there are just over 133 million housing units in America and 10.7 percent of them — more than 14. 2 million — are vacant all year round for some reason or another, according to the Census Bureau.

A recent study by Realty Trac found that 45 percent of those empty foreclosures didn’t have a forwarding address. Florida leads the nation in vacant foreclosures, with 90,556. Illinois came in second with 31,668 empty distressed homes, followed by California with 28,821, and Ohio with 17,367 vacant properties.

Vacant homes are not just an isolated issue. Communities throughout the industrial Midwest struggle with vacant housing every day. In Cleveland, there are thousands of homes beyond repair in Cuyahoga County, primarily in Cleveland and East Cleveland, writes Jim Rokakis in the Cleveland Plain Dealer.  There are so many derelict, severely blighted vacant properties that the city has started demolishing thousands of properties. In Columbus, there are 6,000 vacant and abandoned homes.

In Las Vegas, there are 40,481 vacant single-family homes, according to a study by Luis A. Lopez at the University of Nevada, Las Vegas. The study found that 8.4 percent of the 482,272 single-family homes in the Valley were vacant. Las Vegas also has 16,542 empty condominiums, or 20.6 percent of total inventory, and 5,137 vacant townhouses, or 12.2 percent of total inventory, according to the UNLV report.

And in Detroit the numbers of vacant properties are staggering. Once America’s capitalist dream town, Detroit now leads the nation with an estimated 79,000 vacant homes. Teetering on bankruptcy, the city of Detroit is unable to handle the avalanche of vacant homes, many slated for eventual demolition.

Part of the problem with vacant homes is that America’s home ownership rate is falling at an alarming pace, from 69 percent in 2004 to the current 65 percent in Q-1 2013, according to the Census Bureau.

Nearly 11 percent of houses in America are empty, making them a potential haven for criminals, as well as an eyesore for neighbors and a disaster for local governments, which are losing their much-needed property tax base. Vacancies have also lowered property values of surrounding properties in many communities.

So, what should be done with the millions of vacant houses in America? Should they be demolished? Should they be rented to the homeless? Or sold to investors?

By Octavio Nuiry

Carrying credit card debt is very costly, not only because you have to pay all of the interest charges, but also because your future income is committed to paying for your past purchases. Reducing your credit card debt allows you to keep more of your income, in addition to increasing your credit score and making it easier for you to borrow at low interest rates when you need to in the future.

Once you have invested in a rental property, the responsibility of maintaining and running the property can quickly become overwhelming. For many Owners, the logical solution is to hire a Residential Property Management company to oversee their rental property. But is this the right decision for you? Here are the top 10 reasons to consider why you should hire a residential property management company and how the benefits far outweigh the costs.

1) Rent Collection: A professional residential property management company (“PM’s”) have systems and strategies to improve rent collection and on-time rent payments. This allows you to ensure swift and consistent rent collection. Quick and consistent rent collection is absolutely critical in this real estate market where good cash flow can mean the difference between success and failure as a real estate investor.

2) Local Knowledge of Rental Rates: PM’s have extensive local knowledge of rents and the ability to determine the highest rental rate possible for your property. With the internet and the ability to do large scale searches for rental properties, potential tenants know if your property is overpriced, even by $25. Overpriced properties sit empty while other properties get rented. Knowledge of rental rates is a key factor to fast rentals and quick cash flow.

3) Tenant Screening: A PM requires a detailed written application from each adult with photo identification. Additionally, PM’s will run criminal, social security and public notice (bankruptcy or judgments) searches to determine if the application is accurate. PM’s will also call past and present employers, landlords and other references. PM’s have set requirements and standards for accepting or declining an applicant and thereby ensuring you comply with fair housing rules and other local and state regulations.

4) Marketing Expertise: PM’s have years of experience in how to best market your properties so they are rented in the quickest time possible. PM’s use both offline and online marketing to maximize your properties’ exposure and find qualified tenants quicker. Most PM’s utilizes 10, 20 or even 30 different techniques to rent a property quickly which reduces your carrying cost of a vacant property.

5) Property Law and Regulations: PM’s have extensive and up-to-date knowledge of property laws and regulations and will assist you in making sure you are in compliance with your local, state and federal rules and regulations. These rules and regulations include complying with fair housing regulations, the Americans with Disabilities Act and other applicable local, state and federal laws. Avoiding one law suit will more than pay for any PM’s fees many times over.

6) Tested and Reliable Professionals: residential property management company’s will already have vetted numerous vendors, suppliers and contractors to make sure they provided good quality work at reasonable prices. Failure to properly vet these professionals can be a costly mistake. Many Owners overlook this function because they do not know how to do it or because it is a time consuming and laborious process.

7) Inspection Reports: PM’s perform property inspections before, during and after a tenancy. Additionally, most PM’s will perform routine property inspections at least every 180 days. Your PM should be responsible for preparing frequent written inspection reports for each of your properties. Faults in your property that are found quickly can be resolved before they become expensive items of disrepair.

8) Financial Records and Security Deposit Escrows: PM’s will provide detailed income and expenses reports as well as cash statements every month saving you the bookkeeping headache. Additionally, PM’s will also manage your security deposit escrow funds and make sure you are in compliance with local and state regulations. PM’s will provide end-of-year tax reports for your accountant or financial advisor.

9) Emergency Calls and Shield You From Tenants: A residential property management company will shield you from emergency maintenance calls and tenant headaches. Imagine never having to deal with late night “my toilet is overflowing” call.

10) Low Costs: A PM should only be charging around 6% to 10% of the monthly rent collected. Assuming a monthly rental rate of $1200 per month that is a fee of $72 to $120 per month. This is less than $4 per day! Can you possible do all these things for less than $4 per day?

11) Bonus Reason! FREE TIME: A good residential property management company will free up your time for doing deals that make money. I mean serious money as opposed to dealing with non-money producing activities like tenant and property management.