Seattle offered good deals in 4Q for short sales

The Seattle Times reported short sales sold at about a 24% discount compared to non distressed sales. It is time for investment. Short sale and foreclosure do NOT equal good deal in every case. Some investors bought foreclosures or short sales as investments and they are now in foreclosure themselves.

You need to hire real estate counsel that understands financial data and discounted cash flow analysis. Simply, subtracting expenses from rent is not adequate. Your real estate counsel needs to understand the complex return on capital calculations such as IRR and NPV. Call me.

Short Sale Approval Direct from Fannie Mae

The HousingWire Newsroom reports Fannie Mae lost $2.4 billion in the fourth quarter and asked the federal government for another $4.6 billion in bailouts. Also, Fannie Mae pulled 15,000 loans form BoA servicing recently after servicing failures at BoA.

Fannie Mae is running a new program with a very small group of negotiators to help homeowners wanting to do a short sale. If Fannie Mae owns your loan, then I skip the loan servicer and send the short sale file directly to Fannie Mae for approval. I can get approval in about 3 weeks instead of 2-3 months. Check to see if your loan is owned by Fannie Mae with the Fannie Mae loan lookup tool . Sometimes the lookup tool has problems with condos, so double check on the MERS database.

Buffet says single family homes are cheap now

The Oracle of Omaha has declared single family homes cheap and an attractive asset class worthy of investment. That does not mean you should rush out and gobble up single family homes. It does mean that SFH make more sense as a long term rental today than they did in the past ten years when rents were low compared to prices. Seattle Times.

Many of my short sale clients are people who took some bozos Get Rich Quick in Real Estate Over the Weekend with Zero Down class proclaiming monthly negative cash flow is OK because real estate always goes up in value. In general, yes, real estate always goes up in value. Real estate is just another asset class which moves in cycles of about ten years similar to other asset classes. Mr Bozo missed that in business school. Just say No to Bozos!

Foreclsoure and short sale do not equal a good deal. some are good deals. some are not. some non distressed sales are good deals. some are not.

You need to do your financial due diligence which includes discounted cash flow analysis to calculate the return on capital for each prospective property. When the return on capital exceeds your hurdle rate you have an opportunity. Your real estate professional should perform this analysis for you. “Is this house pretty?” is not discounted cash flow analysis. If your real estate professional says “huh?” when you ask about IRR, then you need to find another real estate professional.

Give me call. We can talk about IRR, NPV, and expected rate of return which includes probability and discounted cash flow analysis!

More Apartment News

Interesting…..apartment owner and developer Security Properties believes the cost of construction is too high compared to the rent forecast which means they calculated a return on captital using discounted cash flow analysis that does not meet their investment hurdle rate. Security sold the lot to another developer. Seattle Times.

Rents are coming down.

Stable Prices? I wouldn’t count on it.

I have mentioned the overbuilding happening in the apartment market. I’ll mention it again……Are home prices stable? Maybe not for long. Seattle is about to have a glut of available apartment rentals creating upward price pressure on the vacancy rate and downward price pressure on the rent rate and the price of purchasing similar shelter. Seattle Times.

I purposefully use the word shelter because purchasing a home is NOT investment. Never has been. Never will be. It is an asset in the accounting sense on your balance, but it will never be an investment grade asset. When you take into all the necessary cash flows, opportunity costs, tax treatment, etc in your discounted cash flow analysis for a lifetime of homeownership you may get an after tax return on capital of 4-5%. You can do better than that with investment grade assets. Buying your condo or home is nothing more than choosing to own your shelter instead of renting your shelter. You could rent and invest the difference in cash flows for a similar financial outcome or a better one. Many people use owing a home as a forced savings account because they lack the financial discipline to rent and invest the difference.

The vast majority of the rents vs. buy calculators available are so simplistic to be worthless because they fail to take into account all the components necessary for a correct calculation. You can find a great version here from a Wharton School of Business Professor of Finance Emeritus. Buy vs Rent.

Buying multifamily or commercial real property is an investment grade asset. Make sure your real professional has the skill set to perform discounted cash flow analysis. Capitalization Rate is NOT a return on capital or return on investment calculation of any kind and neither ”Is this apartment building pretty?”. Beware of the get rich quick real estate investment classes. I call them Dumb Money Investors. They are now my clients in short sale. Years ago I taught non matriculated real estate finance at Discover U and the Phinney Neighborhood Association. I think I’ll bring it back.

 

Home sales up….Don’t get your hopes up Seattle

The Seattle Times/AP reported the housing recovery is underway. Economists generally assign such labels after three successive quarters of consistent activity in the same direction. They look to the past to declare what happened. This is on a national level and not about Seattle. Our region still has about 48,000 units of inventory in mortgage default and not yet for sale. That’s about two years of inventory that will create sustained downward home price pressure. Not long ago the Seattle Times reported new construction apartment developments have created an oversupply of available rental property creating downward pressure on rent and upward pressure on vacancy. That won’t lead to a material increase in owner occupied buyer activity when they can rent for less. Hopefully, WA State’s new Foreclosure Fairness Act will lead to an increase in short sales for mortgages in default instead of foreclosure. Real property assets that sell earlier in the chain of credit distress do more for the economy than selling later as foreclosures or bank owned when the property is in serious disrepair and stripped of fixtures.

A home is an asset, but not an investment grade asset. Over a lifetime it provides a fairly dismal after tax return on capital compared to alternative asset classes. Owning a home is nothing more than a choice to own your shelter instead of renting your shelter.

Foreclosure filings drop in 2011

The Seattle Times reports the foreclosure filings dropped in 2011. Expect foreclosures to be on the rise as many financially distressed homeowners fail to respond to the Notice of Preforeclosure Options waiving their right to mediation under the WA State Foreclosure Fairness Act.

If you or someone you know is facing foreclosure, then they need to call me (425.450.1630) ASAP to get informed about their options to avoid foreclosure.

Notice of Pre-Foreclosure Options

When you are in default on your home mortgage the WA State Foreclosure Fairness requires the lender to send you a Notice of Pre-Foreclosure Options to explain that you have a right to an in person meeting called a mediation hearing with the lender. You must respond to the letter or you WAIVE your rights. The Notice of Pre-Foreclosure Options must be issued before the lender can issue a Notice of Default.

Who is eligible to participate in the Foreclosure Fairness Act Mediation Program?

Homeowners who received a Notice of Default on or before July 22, 2011 and their owner-occupied house has not yet been sold at foreclosure sale; and homeowners who received the Notice of Pre-Foreclosure Options and requested mediation before the Notice of Trustee Sale has been recorded.

All lenders or beneficiaries including private lenders are covered by the mediation requirement, except financial institutions that have conducted less than 250 foreclosure sales annually. WA State Department of Commerce Foreclosure Fairness Program

In my short sale negotiation with the lenders I use the threat of the mediation hearing and the Foreclosure Fairness Act as a tool in my toolbox to obtain the desired outcome…..waiving the deficiency NO recourse.

[Cops theme song] Bad Bank. Bad Bank. Watcha gonna do? Watcha gonna do when Michael comes for you?

Expect it to get worse…..Jobs

We have record numbers of unemployed. They have been unemployed for record length of time. Last week we had a bad jobs report from the Fed and the news articles about symptoms the economy.

Long-term jobless set record; jobs report due

U.S. firms hold back on hiring as anxiety persists

Legacy of decade at war: 1 million jobless vets

If you or someone you know is in default on the mortgage or facing imminent default, then you need to act now to get informed about your options to avoid foreclosure. Failing to act means you may WAIVE your rights under the Foreclosure Fairness Act.

Bernanke says economic recovery close to faltering

Since the Great Depression, recovery from a recession included two key components – job growth and housing growth. The economy needs to expand at 2% to be considered adequate. While the Fed has declared the economy is in recovery we have been on shaky ground. The housing market has already double dipped and is poised to dip a third time from continued poor job growth. The stage is set for a national double dip in the economy. WA State has close to 48,000 units of shadow inventory which is homes in default, but not foreclosed. Seattle Times, October 4th, 2011

If you are in default or facing imminent default, then you need to contact a professional who can explain you options to avoid foreclosure  before it is too late. You may qualify for the Treasury/HUD HAFA (short sale)  program which includes a waiver of deficiency and up to $3000 in relocation  assistance. You may qualify for the WA State Foreclosure Fairness Act. Both  contain timelines that be followed or you waive your rights.