That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.  The 30-year fixed rate before the Federal Reserve bailout plan was 6%.  When the government bailout plan went into effect, consumers saw interest rates fall to historical lows below 4%.  Experts believe the end of the bailout plan on March 31 will spark a rise in mortgage interest rates back to levels before the bailout plan went into effect.

Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Christopher J. Mayer, a professor of finance and economics at Columbia Business School.

Mortgage Calculator

The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.

“We’ve gotten spoiled by the idea that interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.”

Free Report: 6 Things You Must Know Before You Buy

For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.

No one expects rates to return to anything resembling 1981 levels. Still, for much of Wall Street, the question is not whether rates will go up, but rather by how much.

Some firms, like Morgan Stanley, are predicting that rates could rise by a percentage point and a half by the end of the year. Others, like JPMorgan Chase are forecasting a more modest half-point jump.

But the consensus is clear, according to Terrence M. Belton, global head of fixed-income strategy for J. P. Morgan Securities. “Everyone knows that rates will eventually go higher,” he said.

Source: New York Times

Would you like to improve your investment portfolio’s performance?  Take a look at the information below and see what Reuters Financial News is calling “the buying opportunity of our lifetime.”

Would you like to know where you can buy real estate at less than 40 cents on the dollar and get double digit ROI’s as high as 20% or more?

What’s All the Excitement About?

Here are examples of properties already acquired by our clients or are available. Both properties were purchased for less than 40 cents on the dollar and each started producing immediate cash flows of more than $400 a month with ROIs exceeding 15%. . If it sounds too good to be true, it’s not. These are real scenarios of just two of our many investors.

Here are examples of what all the excitement is about!

* examples shown are for informational purposes only and should not be construed as any guarantee of future performance.

Call me today to learn how you can take advantage of this incredible opportunity. This is not a gimmicky sales program. It is a bona fide rare opportunity that, based on current activity, will probably end in less than 12 months.

For more information, contact:

Elliot Y.C. Lau, Realtor

Inet Realty

808-306-0666 Direct Line

808-792-3515 Fax

elliot@pr2k.com

Or at least according to Robert Prechter , who had forecast the 1987 stock market crash, and is chairman of popular technical research firm Elliott Wave International. It is not like the Legion of Doom really needs any more groupies, but if that’s the man’s opinion we will take it.

My long term opinion is that the bear market has several years left to run, and stock prices will go a lot lower," Prechter, said in a telephone interview. more…

As of October 27, 2008 year to date, the Dow Jones Industrial Average has lost 37% of its value; the first 27 days in October accounted for an unprecented 20% of the Dow’s YTD losses. The NASDAQ is even worse, down 42% year to date. Investors have seen a staggering $8.3 trillion dollars evaporate in the stock market so far this year.

As if things weren’t bad enough, Hawaii investors trying to escape the bloodbath in the stock market by moving their investments into real estate are finding Hawaii’s real estate market a tough alternative. Real property values on Oahu so far have bucked the national trend of downward spiraling prices. This means high acquisition prices and low, or even negative, cash flows for investors. “On Oahu, investors are happy to just break even and avoid a negative monthly cash flow,” says Carlton Choy, a Broker In Charge at Premier Realty 2000.

Fortunately, it’s not all gloom and doom. Hawaii investors are turning to a safe and stable investment vehicle and are taking advantage of the downturn in California’s real estate market. Hawaii investors are finding big opportunities in Orange County, California.

There are hundreds of 2 & 3 bedroom homes in Orange County that are owned by banks that had to foreclose on the delinquent owners. These homes that sold for $300,000-$400,000 a few years ago, can be purchased today for as little as $100,000. That’s a 60%+ discount. Investors can buy these homes at 30 cents on the dollar. These homes generate anywhere from $1700-$2400 a month in rent. After all expenses, investors are experiencing positive cash flows of about $400/month per unit equating to a double digit return on investment. While double digit ROI’s and hefty positive cash flows are great, the real investment value is in its future value. It’s a reasonable assumption that these homes will return to the same value it sold for a few years ago. Where else can you invest your money today and reasonably assume that it will triple in value in the next ten years?

In contrast, owning or buying investment real estate on Oahu for the same amount of money will get you a small studio and a negative cash flow. On top of that, since Oahu has held its value, you’re paying “retail” for that property and future value is much more speculative. “I meet with investors several times a week looking to invest in Oahu real estate,” says Elliot Lau, a Broker In Charge at Premier Realty 2000. “When I show them the opportunity in OC, their initial response is that it’s too good to be true. That’s how great the opportunity is right now, and we have real numbers to support it.”

How can you tell that OC real estate is such a great opportunity right now? Follow the pros. Professional real estate investors lead the markets while amateur investors chase the markets. Right now, the pros are buying in OC. A leading indicator of real estate markets is the months of remaining inventory (MRI). It is used to gauge the type of market at any given time. 12 months ago, OC’s MRI was at 17 months; an extrememly strong buyer’s market. In less than 12 months, OC’s MRI is down to 7 months, considered to be a neutral market. Take one guess as to who’s buying all of that real estate? It is no longer a buyer’s market in Orange County. Premier Realty 2000, which has offices in Honolulu and Orange County, has helped many investors reposition their real estate holdings from Oahu to Orange County and triple their return on investment and cash flows. Investors like Paul Lam and Jared Nakamoto of Honolulu see this as a “no-brainer” and are buying as much as they can before this window of opportunity closes. “We expect that there’s about a year remaining for investors to invest in Orange County with such favorable conditions.” says Brian Laughlin, President and Principle Broker of Premier Realty 2000, heading the Orange County office. “The smart investors are seeing that Oahu real estate is not the place to be investing and that Orange County currently offers investors a rare combination of low acquisitition costs, great cash flows and tremendous appreciation potential in a safe and stable investment vehicle.”

1. Use a discount broker to sell your home.

When the market was going crazy just a few short years ago, selling a home meant putting it into the local MLS and prepare for the frenzy of buyers with multiple offers above list price. The market conditions at the time didn’t require much experience of the Realtor to get top dollar for your home.

That was then, this is now. Discount brokers rely on volume to make up the discounted commissions they charge. That volume doesn’t allow them to provide full services to the seller. Regardless of what they advertise, don’t believe for one second that they will. Their definition of “full service” means putting a sign and lockbox on the property, putting it into MLS, maybe hold an open house and review offers for you. If you consider that “full service”, you’re about to make the first costly mistake.

This market requires experience AND real marketing to get you top dollar for your home. Do some research on discount brokers. What you’ll find is either small 1-2 person operations or larger offices where most of their agents are new to the business with less than 5 years experience. They don’t have the experience or a real marketing system for getting your home sold. 2008 data shows that discount brokers take twice as long to sell your home and get 5% less than a full service broker. Lots of sellers lose thousands of dollars when they choose a discount broker because they’ll save 2% on the commission but net 5% less on the sale. It is totally acceptable to want to save money. But if you do your homework, you’ll realize that hiring discount brokers in this market is “being penny wise, and pound foolish.”

2. Cut the commission.

Just as in mistake number 1, the last real estate boom taught sellers to negotiate down the commissions. In that market, it was hard for Realtors to justify the 6% commission. It led to sellers expecting to pay reduced commissions as evidenced by a huge increase of market share for discount brokers. Once again, that was then, this is now. And now is not the time to be cutting the commission. You want to attract as many buyers as you possibly can. 91% of buyers in 2008 are introduced to the seller by a broker. With lots of inventory and choices available, which home do you think the broker will show their client; the home offering a reduced commission to the broker or a comparable home offering full commissions?

If you want to sell your home for top dollar, you should be increasing the incentive to sell your home, not decrease it. It’s natural to want to save money, but if your house sits for months on the market because there’s little incentive to sell it, how much is that going to cost you?

3. Price it too high.

I don’t care what your reason is. If you overprice a home in this market, prepare for a long and expensive lesson. The only market you can possibly overprice a home and still get it sold is in a rapidly appreciating market. In any other market, it just won’t sell. With so many homes for sale in this market, you’re better off not listing it then overpricing it.

If you have to sell, you’re going to have to bite the bullet and price it right. And don’t buy into the common thinking that you price it high so that you have room to negotiate. That mentality will be your next costliest mistake.

4. Keep it in the family or Sell it yourself.

It’s nice of you to want to help your niece who just got into the business, but underestimating this market and the need for experience is one of the costliest mistakes you can make. Thinking that all agents are the same and don’t see the need to interview and find the best agent with the experience to get your home sell will cost you both time and money.

Trying to sell it yourself falls into this same costly mistake. Thinking you have the knowledge and experience to sell your home in this market will be an expensive lesson.

I can’t emphasize enough how different this market is from a few short years ago. Making any one of these common mistakes in this market will be magnified and when you consider the value of your home, these mistakes amount to thousands of dollars. You wouldn’t consider going to an inexperienced doctor to treat a life threatening illness, or hire your part time nephew who just passed the bar exam to defend you in a big lawsuit. Just like these professionals, experience is everything. Don’t trust your biggest asset you own to someone without that experience. There’s a reason why professionals are paid well. They are entrusted with your most important things in life.

Hope this helps. Until next time, happy home selling.

Elliot Lau

]]> http://www.CrystalClearMarket.com/2008/07/14/4-costliest-mistakes-sellers-make/feed/ 1 http://www.CrystalClearMarket.com/2008/07/08/important-numbers-to-know/ http://www.CrystalClearMarket.com/2008/07/08/important-numbers-to-know/#comments Tue, 08 Jul 2008 19:58:43 +0000 brian http://www.CrystalClearMarket.com/?p=206 Buying or selling a home?  A lot of times you need services and don’t know who to contact.  Here is a list of phone numbers that can make this transition a little easier.

1. Hawaiian Telcom 808-643-3456

2. Hawaiian Electric Co Inc. 808-548-7311

3. Board of Water Supply 808-748-5030

4. Oceanic Time Warner Cable 808-643-2100

5. Honolulu Department of Motor Vehicle 808-532-7700

6. Hawaii Drivers License 808-532-7730

7. The Gas Company 808-535-5933 ext 2

8. TheBus Pass Office 808-848-4444

Route Information 808-848-5555

9. Business Registration, Permits, Licenses (DCCA) 808-586-2727

10. Oahu Real Property Tax Assessment Division 808-768-3799

Oahu Real Property Tax Collection (Treasury Dept) 808-768-3980

11. Disabled Parking Permits 808-586-8121

12. Picnic and Camp Permits 808- 523-4527

13. Honolulu C&C Satellite City Hall 808-527-6695

14. Honolulu C&C Municipal Golf Course Reservations 808-296-2000

15. Bulk Item, Green Waste Pickup

Honolulu 808-832-7840

Aiea – Pearl City – Ewa 808-455-9644

Kailua, Kaneohe, Waimanalo 808-262-7298

Koolauloa 808-293-5657

Haleiwa – Waialua – Sunset Beach 808-637-4795

Wahiawa – Mililani 808-621-5241

Waianae: Honokai Hale – Makaha 808-697-1178

16. People’s Open Market 808-522-7088

17. Honolulu C&C Mayor’s Office 808-523-4141

Depending on your area, many times it is not that hard to find a great real estate deal. In some areas you’ll see 20 to 50 percent as distressed sales. Even with this type of market, there tends to be an elite class of properties that stand out among the distress category.

It could be because of location, condition, price or terms that cause these types of properties to be stand outs and it is in this category that I’ll share some secrets as to how to get them.

PART I

Short Sales

Based on price these seem to be one of the most attractive categories to pick from. Not only that, but there are so many of them. The problem with short sales is that it comes with a HUGE contingency. It is subject to the lender’s approval.

That means the buyer and seller can agree on the price and terms, but it means nothing until the bank approves it. Many banks have a loss mitigation department and their objectives can be quite different from the seller and buyer.

Tip 1

One key is to work with approved short sales . That most likely means an offer was submitted and the bank had approved that offer and for some reason it fell out of escrow. The buyer and seller already know that the bank will accept the price they did previously. This helps a lot when looking to purchase short sales.

Tip 2

It’s a numbers game. Most experienced short sale agents do not think much of the first offer(s). The Listing agent knows it just starts a process with the bank and that statistically the buyer will end up finding another property instead of waiting 4 to 12 weeks for a response. In this case, a second key is to recognize that purchasing short sales is a numbers game and it usually takes about 10 offers to equate to 1 close. Play the game correctly and you’ll have a valid chance at owing some really good properties.

Tip 3

Think in nets. Usually, a good story and a strong qualified buyer with a large down matters to sellers and is essential to getting your offer accepted. With banks being so overwhelmed with loan defaults, the standard mode of operation is the path of least resistance. The primary indicator that they use is what they will net from this sale. So when making offers, look to see how you can show that the bank will net the most from working with you.

Tip 4

You MUST have an agent team that is aggressive in follow up. Remember, your offer may be used just so that the Listing agent can start talking to the right bank department or person and you can easily be ‘forgotten.’ I can think of over a dozen stories like these from other agents in the past 2 weeks! Follow up is a must and you need to have someone who has the resources to do it.

Tip 5

Keep your deposit check. There is no reason to open escrow when such a major contingency exists. You can not tie up the property by being in escrow. Let’s say you open escrow and wait 8 weeks. In that time 4 other offers come in and are presented to the bank. The bank can accept another offer even if you are in escrow.

Tip 6

Work with an experienced team. Don’t get sold on what an agent can do for you, have them prove it to you. That’s right – if you miss this step you can waste a lot of time. Many agents do not have successful experience in this area, transact too infrequently or do not have a team.

Experience

If they are learning on you then you could be paying too much or missing out on the best deals. Ideally, you want someone that has been through a market cycle before, is working fulltime and has no other occupation. They should have specialization in what you are looking for. An easy way to tell is to look at their business card. If they are not even trying to brand themselves as an expert in the category you want, then why take that chance working with them.

Transactions

They should have no less than 10 qualified active buyer clients. If you are the only one or 1 of 3 then you should run. If you needed to do brain surgery, would you want a doctor that does 1 every 6 months or see the doctor that has 1 to 2 surgeries every day. There is safety in crowds and working with an agent that doesn’t have a strong active client following in your category is a huge indication to ask a lot more questions.

Team

If they do not have a team (a real team) that can service you then there is really no way you can find the best deals. The reason – it takes a lot of hard work. This is not rocket science type of hard, more like ditch digging hard. If you want a Grand Canyon real estate steal then you need to have an agent team that can throw their resources behind you.

Caution, don’t get tricked by a franchise name thinking familiar is better, because the reality is that all of their agents are independent contractors and the ‘team’ may be nothing more than promotion and not the ditch digging hard work needed to win the best real estate deals.

The best way to find out is to ask who is on the team, what do they do and how will they service you.

In the next series we’ll talk about how to get the best REOs on the market.

The front end ratio is a measurement of just the total monthly house obligations. The acronym PITI is commonly used. It stands for Principle, Interest, Taxes and Insurance. The Principle and Interest represents the montly mortgage payment, Taxes are the property taxes broken down to monthly increments, and Hazard Insurance to insure the structure from fire, natural disasters, etc. Although not part of the PITI acronym, monthly mortgage insurance payments and Association dues/fees if applicable would also be included when calculating the total monthly house expenses. The total of all of these monthly house expenses divided by your monthly gross income will be your front end ratio.
For conforming loans, the front end ratio is typically 28%
For FHA loans, the front end ratio is 31%.
Example:
Principle and interest payments= $1500
Property Taxes= $250
Insurance= $250
Total housing expenses= $2000

Gross annual income= $85,000
Gross monthly income= $7083 ($85,000 / 12 months)

Front end DTI= $2000 / $7083 = 28%

The back end ratio adds all monthly recurring debt to the total house debt to arrive at the back end ratio.

Orange County real estate statistics are out for April and the months of remaining inventory has dropped by 14.2% holding at 9.6.  Last year during the same period it held at 9.3 just 0.03% off from 2008.

So is this market strengthening?

How Low Will They Go?

People have a major misunderstanding of what they expect to accomplish when trying to purchase distressed or bank owned property. I emphasize trying because those same people end up never buying anything.

So how low will the bank go on a short sale or REO? If you’re hoping for a number, you can stop reading. If you’re hoping to steal the property, you can stop reading. If you’re hoping to buy property for 50% of market value, you can stop reading. If you’re hoping to wait and buy the property for less by dealing directly with the bank, you can stop reading.

There are four things you need to understand: 1) The bank only accepts short sales when they believe it’s in their best interest! 2) Banks do not voluntarily accept losses. 3) Banks will always try to limit their losses. 4) Banks know the fair market value of the property.

These four are in no particular order. If they were, number four would probably be number one. I talk to people on a daily basis who want to make offers so low, I can only assume they think the bank has no idea what the property is worth. Don’t be so naive. The bank has a legal obligation to get the highest amount possible for any property. The bank can even be held liable for the difference if they are negligent in approving a sale that is too far under fair market value with no justification. Stories of someone picking up a property at 50% of market value are either urban legend or missing critical factors that played a part in the purchase.

You Can Get Good Deals In Distressed Real Estate

Yes you can. Just be realistic. If you think you can purchase real estate at a 50% discount, you’re not realistic. There isn’t one single situation, no matter how desperate, that would cause an owner to sell their home for 50% under market value when an experienced Realtor can sell that same house for 30% under market value in the same amount of time under the same conditions. Anyone who tells you they did is leaving out part of the story. However, it is very possible to buy distressed homes at a 25% discount. Anyone who tells you a 25% discount isn’t a good deal, doesn’t know real estate or investing in it and you’d be better off steering clear of the real estate advice they have to offer. As a matter of fact, a 25% discount on anything you buy, whether it be gasoline, groceries or a car, is a great deal.

I see so many people that won’t buy unless they can get it for no more than 60 cents on the dollar. They pass on property that’s 25% under market value. Big mistake, here’s why:

Let’s assume there are 10 properties with market values of $100,000 each. 9 of these homes can be purchased for $75,000 each (25% discount) and one at $50,000 (50% discount). This is a fair ratio for illustration purposes. In the real world, it could easily take you more than a year to wait it out for the 50% discount. It’s very possible that you never find something discounted that much.

Investor A buys the 9 homes for $75,000 each

Investor B buys the 1 home for $50,000

Assuming a 5% annual appreciation for each property, this is what each investors real estate portfolio would look like 5 years later:

Investor A’s Equity = $473,653 ($100,000 original FMV x 5% annual appreciation x 5years – $75,000 purchase price x 9 properties)

Investor B’s Equity = $77,628 ($100,000 original FMV x 5% annual appreciation x 5years – $50,000 purchase price x 1 property)

Investor B’s strategy to wait for the great deal cost him nearly $400,000. He made the mistake most amateur investors make; focusing on only one thing – discounted value. Investor A created wealth through leverage. Professional real estate investors know that leverage trumps discounted value every day of the year. Leverage is so powerful, had Investor A bought all 9 properties at full market value ($100,000), he still would have equity of $248,653 or triple Investor B’s investment with a 50% discount. In this market, you can buy real estate at a 25% discount all day long and maybe never find the 50% discount.

Top 10 Tips For Purchasing Short Sales and Bank Owned Property

1. Be realistic. Reread the tale of two investors above if you still don’t understand how being unrealistic can and will cost you dearly.

2. Get off the fence and get in the game. If you’re waiting for the market to drop, reread the tale of two investors above to remind you of how much waiting can cost. Learn more about timing real estate markets here: Secrets for Timing The Real Estate Market

3. Know the true market value of your target property.

4. When making an offer, be able to support the amount of the offer. Pulling a low ball number out of thin air isn’t going to work. If you don’t understand why, reread the four things you need to understand in bold type above.

5. In a short sale, the bank will only accept your offer if it’s a better alternative to foreclosure. This means that the bank will take the fair market value of the property in its current condition, subtract the costs of foreclosure and selling it as an REO, and the "fudge factor". The "fudge factor" covers the costs that will accrue if the bank has to take the property back at foreclosure and includes lost opportunity, risk of vandalism of the vacant property after foreclosure, declining market risks and time to sell as an REO. The "fudge factor" will be the only area the bank will be willing to negotiate. This is the supporting amount mentioned in tip #4.

6. In REOs, the bank can be more "motivated" during certain times of the year. They will generally be more likely to entertain low offers at the end of the month, quarter and year. The banks want to get real estate off their books and these calendar targets can create motivation. But remember, be realistic. Just because it’s nearing the end of the year, doesn’t mean the bank is going to jump at an offer that’s ridiculous.

7. Having access to REOs before they are listed can give you a big advantage. How do you get this information? Here’s one way: Hawaii REO Bargains

8. Don’t get emotional or stuck on any property. Real estate investing should be run like a business. Keeping emotions out of it allows you to make rational decisions.

9. Understand and accept the risks involved with these types of properties. To get the good deals, you will have to accept risks involved with them.

10. Retain the help of an expert Realtor with experience in these types of properties to help you. Don’t think you can do it yourself. That mindset can cost you thousands. Besides, as the buyer, you don’t pay for their services.

Hope this helps. Until next time, happy house hunting!

Elliot Lau