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Perspectives on the Denver Real Estate Market

 Positive Perspective on the Denver Metro Real Estate Market

Analyst Predicts Housing Rebound: Expect higher mortgage rates, relatively flat home prices and a rebound in home sales next year, Lawrence Yun, chief economist for the National Association of Realtors, told an audience of metro Denver real-estate professionals on November 17th. read more here

Mortgage Purchase Applications Hit 6-Month High: Mortgage applications to purchase homes increased 14.4 percent last week on an adjusted basis compared to the previous week, according to the Mortgage Bankers Association weekly survey.read more here

Market for Commercial Property Increases: The price of U.S. commercial property rose 4.3 percent in September compared to August, the largest increase in 10 years, Moody’s Investors Service reported. read more here

Colorado Urban Foreclosure Sales at 19-Month Low: Foreclosure sales at auction in Colorado’s largest counties fell to a 19-month low in October as the mortgage industry slowed down action on foreclosures, the state Division of Housing reported on November 22. read more here

Denver-area Luxury-Home Sales up 20.5% in October: Sales of $1 million-plus homes in the Denver metro area rose 20.5 percent in October, compared to the same month last year, according to Metrolist Inc. data. read more here

Plentiful Powder Draws Skiers to Mountain Resorts: Thanks to a series of winter storms pounding Colorado’s high country, many of the 18 ski resorts now open are reporting their best early season conditions in years. read more here

Holiday Hiring Up this Year: It may be yet another sign the economy is ready to rebound. Seasonal hiring for the holidays is expected to be stronger than last year. read more here

Kiplinger’s: University of Denver, Colorado College Named Top Values: Two Colorado private colleges are rated by Kiplinger’s Personal Finance magazine as among the 200 private schools it considers to be the “best values” in America.read more here

Black Friday 2010 Finds Many Shoppers ‘Feeling Better’: As “Black Friday” kicked off the holiday shopping season and brought flocks of customers to metro-Denver stores, some retailers said they sensed more optimism and energy among shoppers this year. read more here

Vestas Plans More Hiring in Colorado: Danish wind turbine manufacturer Vestas Wind Systems plans to hire 100 more people at its Windsor blade plant in the next six to 12 months. read more here

Did You Miss the Boat? Nope!

  • Home shoppers who missed the April 30 deadline for The Home Buyer Tax Credit might have the last laugh for a variety of reasons. If done right, today’s home buyer could end up saving more than the $8,000 they could have received from the tax refund. Let me explain a couple of reasons why.
  • There are now sellers that are dropping their prices because buyers are harder to find now that the credit has expired. Not only have there been these reductions in prices, but traditionally, prices start to come down in June and July anyway because of school schedules and summer travel. So, there is a double-dip effect on prices.
  • Plus, in efforts to keep buyers interested, there are a lot of home sellers that are also offering promotions after the tax credit ended that, in many cases, are worth more than the credit itself. Seller paid closing costs, upgrades, and cash, just to name a few.
  • Add these to the down-right low prices and that creates incredible savings for all buyers.
  • Oh, yeah, then there’s this…
  • Maybe you have heard, Interest rates are as low as they have ever been! (or at least as long as anyone has been tracking them.) Rates are at 4.5% on a 30 year fixed rate mortgage, (as of July 7th, 2010.) FHA 5/1 ARMs are at 3.25%!
  • You could buy a $250,000 home with only 20% down and pay principal and interest of only $1,014 per month! Three months ago, when buyers were stumbling all over themselves to get in under the tax credit deadline, the rates were a full point higher. That made the monthly payment higher by $121.00. So, in a little over 5 years, that is $8,000 in savings. You add that to the prices that have dropped and take on some of those promotions sellers are offering and, boom! You are way ahead of the buyers that made it in under the deadline!
  • Thanks to the low interest rates and the “Cash for Clunkers” effect that the Home Buyer’s Tax Credit has caused, I guess it is OK to miss the boat from time to time…
  • Happy shopping! And SAVING!
  • Investing in the real estate market has risks and is not for everyone. I am, by no means, suggesting this is for you. I am a trained professional, I do this for a living. If you would like more information regarding real estate investment, just let me know. You can also consult your accountant, attorney, Priest, Pastor, or Rabbi about the risks involved in investing. I am, however, available to answer your real estate related questions.
  • Jeff Hansen
  • jeffhansen@remax.net

How's The Market?

  • So, How’s the Market, June, 2010
  • All real estate data taken from Metrolist, Inc, on June 7, 2010. Denver, Colorado.
  • “Five Reasons to Sell and Buy a Home in June of 2010!”
  • REASON Number One! The buyer competition is lower than in earlier spring months, which benefits buyers. Sellers have an opportunity to capture the buyers with creative terms. Buyers will not compete with as many buyers as the previous month giving them a better negotiating position. This looks to be a short term opportunity for buyers, as we would project more buyers entering the market as rates rise.
  • The tax credit pushed the buyer pool into buying in March and April and the lack of properties currently under contract in one month decreased by 2001 units. This means that the pace of buyers buying has slowed down giving a buyer the buying opportunity in June 2010. Each price range and location offers different data, but if you are a buyer today you have fewer buyers as competition this month.
  • REASON Number Two: Interest rates hit historical lows in June in the mid 4.5% range for a conforming loan rate. The buying power is off the charts for a buyer to really maximize their housing investment. A $300,000 loan at 4.5% = $1514 dollars principle and interest per month. That same $300,000 at 7% = $1984 dollars principle and interest per month or $470 dollars more payment per month or $5640 dollars per year more. The average person lives in their home 5-7 years meaning the savings in payments over 7 years would be $39,480! Although rates are expected to rise slowly through 2010, we suggest buying now to lock in historically low rates and avoid the rush of buyers who enter the market when rates to start to rise. Is it worth it to you to save thousands of dollars in payments when you buy today?
  • REASON Number Three: Sellers in entry level single family price ranges which is below $350,000, can position their home against fewer properties this year than previous years. The tax credit absorbed quite a few entry level properties making for a unique “Move Up” opportunity for sellers. Sell at close to list price on the entry level home and become a buyer in the upper price range and look for a discount. The absorption rate for a single family home priced in Denver from zero to $500,000 is 5.1 months supply. This makes the lower priced range homes a sellers market. Conversely properties from $750K to 1 million and above have an absorption rate of 30 months with 2250 homes on the market and an annualize number of sold single family homes above $750K to be a projected 892 homes. This upper end phenomenon creates a buyers opportunity not normally seen in the last 50 years.
  • REASON Number Four: The last time the Denver market had 3 consecutive months of sold data that exceeded the previous year was 2005.
  • Historically, 3 straight months of increased sold data would signal the market is on an upswing. Since the Tax Credit artificially increased sales in April, watching this data over the next 3 months will be good indicators if Denver is on the rebound for appreciation or if we are still bouncing along the bottom of the market. Either way, buying now assures you of buying at the bottom of the market.
  • REASON Number Five: Denver is considered by numerous experts as the city that will out perform the national market in job growth and job stability for the next several years. When there is a pool of jobs, people move to the city with the jobs. When people move to a town it will lower inventory and when inventory reduces, prices go up. There are three parts to a buyer making a buying decision: 1. Average Price. 2. Interest Rates and 3. Job Stability. When all three are aligned in favor of the buyer, like June of 2010 is, properties start to move and appreciation occurs.
  • CONCLUSIONS:
  • Why Should You Considering Selling and Buying in June 2010?
  • • Excellent Opportunity to Buy an Appreciable Asset at the lowest prices in years.
  • • Low Interest Rates Make Your Buying Power Exceptional.
  • • Building Costs are low for those who want to build their dream home.
  • • Sellers are more realistic to the market conditions and their Odds of Selling.
  • • The future of real estate will continue to be a solid investment and buying at the lower end of the market is Smart. Do you wish you would have bought more real estate in 1988? Don’t wish the same thing in 2028 about 2010.
  • What should sellers do in today’s market?
  • • Only put your home on the market if you understand the Odds of Selling and Positioning Your Home where buyers are buying.
  • • Become a motivated seller by offering attractive terms to buyers
  • • Make your home a STAR Home! Shows Terrific And Realistically positioned.
  • What should buyers do in today’s market?
  • • Leverage your buying power with the low rates.
  • • Financing Terms could make an offer very attractive for you.
  • • Get Pre-Approved to Buy like a Cash Buyer.
  • Call me if you want a market valuation of your home or to discuss where you should be buying.
  • Jeff Hansen
  • RE/MAX Professionals
  • (303)794-4530

Please, Please Please. Don't Miss the Boat.

  • Have you ever heard the expression: “If you are hearing about it, it’s too late”? Well, when it comes to markets, that expression can be true.
  • I have been experiencing a dramatic increase in sales in the real estate market over this time last year. By dramatic I am talking 100% increases in certain areas, and in others, 300%! And it is not just me, the entire company is showing these types of sales numbers. Inventories are outpacing sales for once. Much of this is due to the tax credits available to qualified first time home buyers. But, that alone cannot account for all sales increases across all price ranges. For example, the first timers rarely purchase Mc Mansions, they are buying in the lower price ranges and maybe stretching into the mid-ranges. There is a trickle up aspect to it, however. First timers buy a house, the sellers of that house move up a level and create a demand for the next price point, and that continues the cycle on up the ladder. Another reason for the bump is certainly because of pricing. Home prices for a long time have been inflated. But, now that the bubble has burst, there has been a massive correction in the marketplace. Sellers have taken notice and are pricing their homes where they belong to begin with. Once the proper pricing started, buyers took notice and sales started to happen.
  • Whatever the reason, the numbers are up and the numbers don’t lie. The market is coming back. And it is coming back faster than CNN or FOX News might have you believe. Prices are still down, interest rates are still down and inventories remain a bit on the high side. Still a perfect storm for buyers, in a good way! More importantly, a perfect storm for recovery.
  • Back to the old expression; now that you’ve heard, are you too late? Nope. The real estate market is a slow moving beast. It lumbers, it doesn’t gallop. This bargain season is going to last for awhile. How long? Who knows. Maybe a year, two, three. It may have taken the lumbering giant a while to start rolling, but it is moving along now. Who wants a ride?
  • Here is a website to get you on your way
  • http: //www.coloradohomesalesonline.com/
  • Investing in the real estate market has risks and is not for everyone. I am, by no means, suggesting this is for you. I am a trained professional, I do this for a living. If you would like more information regarding real estate investment, just let me know. You can also consult your accountant, attorney, Priest, Pastor, or Rabbi about the risks involved in investing. I am, however, available to answer your real estate related questions.

Selling in a Buyer's Market

  • I was recently having a conversation with a friend of mine and the question of whether or not it is a good time to sell came up. Selling in a buyer’s market can be tough, but it is possible. The secret is to price the home right. This market has had a major correction for the increases we saw in the late 90’s into the early 2000’s. We are looking at 2003 prices across the board, some areas as low as 1999 prices, ouch! But, it is what it is. And the people that are ready for it come out strong. If you get too overzealous and price it out of the market, it will sit for months and get stale. Proper pricing will get the home sold, always.
  • An aspect of this market that is widely overlooked is that when you sell in a buyer’s market, you are likely to become a buyer in a buyer’s market. Most likely you will take a hit on the sale, but when you become a buyer, it is you that is hitting back! And as everyone knows, when it comes to investments, it is not how you sell, but how you buy. Your money is made on the purchase. If you are a seller in a seller’s market, on the other hand, you may make out pretty good on the sale, but get hammered on the purchase. If you get hammered on the purchase, your investment will always suffer. So, in my opinion, it is not a horrible time to sell as long as you are then becoming a buyer in a buyer’s market.

Foreclosures, Short Sales, and Auctions! Oh my!

  • What an incredible time to be in real estate! Have you ever heard the term, “buy low, sell high”? Of course, who hasn’t? Well, how do you know when to buy? The housing market is complex, all markets are complex. There are a lot of aspects of a housing market to consider when looking for a good time to buy. Supply and demand is one aspect. And looking for distress is another. I have discussed the effect of supply and demand in earlier posts to this blog, so I will not elaborate on this aspect. Distress, however, is an aspect that, many times, is overlooked when considering a purchase. Distress causes a seller to make decisions that they might not normally make when in their comfort zone.
  • Distress comes in many forms. Let us focus on Foreclosure. Once a homeowner gets into a situation in their lives that, for whatever reason, makes it no longer possible for them to make the payments on the mortgage, the loan enters distress. This puts pressure on the homeowner and the bank. The homeowner does not want to lose the home, lower their credit rating and cause embarrassment to the family. At the same time, the bank has its own bills to pay as well. Let us not forget that the banks are run as a business. A business needs income to survive. This is quite simplified, but serves the purpose of this discussion. The bank wants to keep their doors open in order to function as a business. The interest coming in from the loan payments are their income. Once that income flow is disrupted, it causes distress. People, and companies, for that matter, that are in distress, will make decisions that they would not ordinarily make. Banks are no different.
  • A homeowner facing Foreclosure will feel that there is no way out. This is not true. There are options. Loan modification is one, a Short Sale is another. See my blog entry titled “Foreclosures, Short Sales and the Embarrassment Factor”. This blog entry discusses a seller’s options when facing this stage of distress. Once the seller is in this state of distress, an option has to be chosen. Each option has different consequences for the seller, however, it provides many opportunities for buyers. Buyers can offer less than the home is worth according to the local market analysis. In many cases, banks are approving Short Sales and helping these sellers get rid of the homes at discounted prices to the buyers. This is a wonderful opportunity to help both the seller and the buyer. If handled correctly, these transactions are a win-win.
  • Once the home goes to Foreclosure sale, the seller loses out. They lose the ability to modify the loan terms, sell the home short, and generally wreck their credit rating for many years to come. Most sellers want to avoid this situation, so are willing to accept low offers on their homes. Lower offers than they would EVER consider when not in distress. This should be looked at as an opportunity that will benefit both sides, a true win-win. The only loser is the bank.
  • The next opportunity for buyers to consider is buying after the Foreclosure sale occurs. Once the sale occurs, the bank takes possession of the house. This is now considered to be real estate owned by the bank, (REO). The banks really don’t want REOs. It is considered to be an asset on the bank’s books. For every dollar that a bank has as an asset, it needs to hold a percentage of it in cash in reserve with the Federal Reserve Bank. I am not going into the details of this aspect of banking, suffice it to say that this creates distress in the banking world. This part of banking is what caused many banks fail. Buyers can take advantage of this distress and see it as another opportunity. REOs are sold on the open market, just like any other home. These homes are priced considerably lower than the competition. Buyers should consider this as an occasion to buy low.
  • The third aspect to consider when looking to buy low, is Auction. Auctions are the wave of the near future. Auctions generally occur when the REO fails to sell on the open market. I say generally because there are many reasons why Auctions occur, let us just focus on this one side of it for now. This type of Auction is usually looked at as a last resort for the bank. A bank will pick a reserve price and a starting bid. This price is commonly quite low comparative to the market data. Buyers are given a chance to bid on the home in a public bidding process. One catch, and there are many, these buyers have to have cash. It is as simple as that. Well, not really, there are a lot of things to consider when buying a house at Auction. Look for blog posts right here on this subject in the near future. There is a lot to discuss on this aspect and cannot wait to lay them out for you. There is no more exciting way to buy. It is not for everyone, and not what I focus on, but wow! What a fascinating culture! And one we will be seeing a lot more of soon!
  • So, these are just three aspects to look for when considering when is a good time to buy a home. Buying low and selling high is the most fundamental way to stay successful in your investments. Consider all aspects before making a decision. I can help you on that path. Good luck and have fun!
  • Referring website; http: //www.coloradohomesalesonline.com/
  • Investing in the real estate market has risks and is not for everyone. I am, by no means, suggesting this is for you. I am a trained professional, I do this for a living. If you would like more information regarding real estate investment, just let me know. You can also consult your accountant, attorney, Priest, Pastor, or Rabbi about the risks involved in investing. I am, however, available to answer your real estate related questions.

Is It Good or Bad That There is More Housing Inventory?

  • Is it good or bad that there is more inventory?
  • Depends on which side of the sign you are on. The FOR SALE sign, that is. If you are selling; bad. If you are buying; not good, great! It comes down to basic economics. The more supply that you have, the less demand there is for a product, and therefore, less price. We are in the midst of this phenomenon currently in the housing arena. All over the country there are neighborhoods that are devaluing. If it hasn’t hit your neighborhood, believe me, it’s coming.
  • We will see more devaluing due to increased inventories because of the foreclosure situation we find ourselves in today. See my blog entry on Nov 21, 2009, titled “Why is the real estate market down?” Banks have been sitting on their Real Estate Owned (REOs) inventories until the start of the year. Call it, padding or softening the books for year’s end. Call it whatever you like, they did it. You might recall a few months back when a couple of banks, out of the kindness of their hearts, made the announcement that they will be putting the foreclosures on hold through the holidays. They made it sound as if they were doing it to help people out during the holidays, so as not to kick anyone out of their homes before Santa got there. In fact, the less foreclosures that showed up on their books toward the end of the year, the better. It did help people stay in their homes, sadly, it only delayed the inevitable.
  • Inventories are a key element of the housing economy, if not the key to the housing economy. In a free market society this is what dictates what something, indeed, anything, sells for. And that includes houses. I am starting to sound as obvious as John Madden, “the more you score, the better chance you have to win… BOOM!” But, seriously, this is not rocket science. Prices are down and, in some areas, continue to drop. The lower prices create more demand, and as that demand increases, supplies drop and price has catch up to meet demand. It is fundamental.
  • So, which side of the FOR SALE sign are you on? If you are on the selling side, get creative, get savvy, get aggressive and sell. If you are on the buying side, yee-haw! If you are buying, get creative, get savvy and BUY! When else are you going to see a market like this again? Interest rates are amazing, prices are amazing, and the sky is the limit when it comes to which house to choose. With the inventories we are dealing with, you have the pick of the litter.
  • Referring website; http: //www.coloradohomesalesonline.com/
  • Investing in the real estate market has risks and is not for everyone. I am, by no means, suggesting this is for you. I am a trained professional, I do this for a living. If you would like more information regarding real estate investment, just let me know. You can also consult your accountant, attorney, Priest, Pastor, or Rabbi about the risks involved in investing. I am, however, available to answer your real estate related questions.

Is Right Now The Time To Buy Real Estate?

  • The economy is still in a state of turmoil. A lot of people are thinking that it is not the right time to make major investment moves. That thinking could be your downfall. Much of the housing news lately has been depressing. All of this talk of foreclosures and short sales and unsold inventory, it seems like a never ending battle. The reality is that when all of the talk is about how the market is booming, it is already too late to get in at the ground floor! Waiting may not be the best strategy anymore.
  • Home buying is not for everyone. There are risks involved and knowing the right market is key. I recommend that you look at markets with lower than average unemployment. It is my opinion that that is what will drive us out of this downturn. Once the unemployment numbers start to stabilize, the markets are soon to follow. Consumer confidence is lost in an economy that can’t support jobs. Once the long time unemployed masses start receiving a steady paycheck once again, the housing market will bounce back.
  • Real estate historically appreciates overtime. Let’s look at home prices. If you bought a home today for $235,000, it will be worth $485,000 at 3% annual appreciation after 30 years. At 4% annual appreciation the same home will be worth $649,000. According to the U.S. Census Bureau, the price of new homes increased nationally by an average of 5.4% annually from 1963 to 2008. The National Association of REALTORS® reports that the price of existing homes increased by the same 5.4% per year over the same period. 2009 was a year that showed significant price reductions. In some markets in the range of 30%! I may be wrong, but the way I look at it, now home prices are below the curve.
  • Thehousing market is showing signs of recovery, and in some areas, signs of price increases. Along with the fact that interest rates are incredibly low and the federal government is offering up to $8,000 for homebuyers (see my article from Nov. 24 titled, Extended $8,000 1st time home buyer credit, and you!) These are all reasons to look seriously at real estate. But, I feel that the number one reason to get back into real estate is that there is an incredibly large number of homes in distressed situations. By distressed, I mean financial distress. There are more and more homes going into foreclosure and many more banks now that are willing to negotiate short sales as an alternative to foreclosure. These homes are where you find the deals. Sometimes priced 10% to 15% to even 30% below market! It has been decades since this type of opportunity has presented itself.
  • So, to answer the question, “is it the right time to buy real estate?” I believe the answer is clear.
  • Go to www.metrodenvershortsalesonline.com to get more information about Short Sale transactions and to get further information on where to get started.
  • Investing in the real estate market has risks and is not for everyone. I am, by no means, suggesting this is for you. I am a trained professional; I do this for a living. If you would like more information regarding real estate investment, just let me know. You can also consult your accountant, attorney, Priest, Pastor, or Rabbi about the risks involved in investing. I am, however, available to answer your real estate related questions. www.jhansen.biz

Foreclosures, Short Sales and the Embarrassment Factor

  • There is an innumerable amount of foreclosure transactions that are currently taking place that never should have been foreclosures in the first place. What do I mean about this? It is called the embarrassment factor. We, as humans, have emotions. Many, if not all, are tied to pride. Pride is what drives most people’s day to day activities. I’m not going to get into the deep emotional aspects of our psyche; what I want to talk about is what this has to do with the current housing market.
  • I know of transactions that become foreclosures because the homeowners waited too long to get help. They waited because their pride got in their way and did not allow them to ask the right questions on where to go next. It has happened to people I know and work with. What it takes to make informed choices starts off with taking emotion out of the equation and getting to the issue at hand. When a household runs into roadblocks, loss of a job, divorce, and worse, death, sometimes the bills get out of hand. It is to be expected and normal that the bills become secondary. It is important for this household to know that they are not alone. Like I said, in these cases, and many others, this is to be expected and normal. They should not let the idea of pride cloud their judgment on how to get help.
  • Secondly, it is important to know that when the bills pile up and go unpaid, the clock is ticking. It starts without a care for your feelings. When humans suffer a hardship of some kind, we often feel like we should be given a grace period. After all, “I just had a horrible thing happen to me, so I am calling a time out.” In these cases, the people involved think that they have time to figure it all out. The reality is, the creditors want their money whether you’ve had a bad day or not. They start the clock immediately.
  • The good news is, if you have suffered a hardship, the creditors will soften the blow. They are allowing what are considered loan modifications. For example, credit card companies are giving breaks on rate increases. Banks, in some cases, are letting people skip a month or two and adding that principle back into the loan to help out in troubled times. And, most importantly, mortgage companies are allowing what is called a Short Sale. A Short Sale is a type of loan modification that works this way. If the house is worth less than what is owed on it and the lender feels that a hardship is worthy, the lender will, in most cases, take the difference off of the principle balance at sale. One has to remember that the clock is ticking. Waiting too long could turn this possible Short Sale into a foreclosure. It is complicated, and is it necessary to have an expert take the seller through all of the steps involved. Fortunately, those experts do exist. Sellers in this situation need to look for a real estate broker that has a designation proving that they are an expert in this field. That designation is the Certified Distressed Property Expert, or CDPE. I happen to have that CDPE designation. I can help.
  • Foreclosure numbers have stayed high and are creeping up once again. If something isn’t done, 2010 will prove to be the Year of the Bank Owned Property. The number of foreclosures can be lowered if the proper steps are followed for Short Sales and loan modifications are successful. If we can get people out these sticky situations, this market will be the stronger for it. Contact me for details.
  • Jeff Hansen, RE/MAX Professionals
  • jeffhansen@remax.net

Inventory Analysis

  • According to Metrolist of Denver the inventory of single family homes for sale in the Metro Denver area dropped to 13,971. This is the first time that the number of homes for sale around here has dropped below 14,000 since 2004! Why is this significant? Inventories are at the root of a supply and demand system. I have had discussions about this phenomemon in earlier posts; see November 4th discussion titled "Why is the real estate market down?"
  • Whether the inventory is down because of recent sales, or because some people want to take their homes off of the market during this time of year is difficult to say. Sales are up for the month of October, (November numbers not out yet) that could speak for some of the drop. Sellers who have had their homes for sale through the summer and into the winter, sometimes want a holiday break from marketing as well. This can also account for a portion of the decrease. Whatever the reason, the numbers are down. And down a good deal compared to the last few years. During the same time last year the inventory of single family homes was 16,775, and in 2007 it was at 20,603, 2006; 20,392 and in 2005 we were at 18,005.
  • What does it all mean? Inventory analysis can be a method of gaining knowledge of economic health. It is only one indicator, there are many other methods that can and should be used as well. It is a method that looks a one of the core principles of supply and demand, and that makes it significant because it is one of the first pieces of data available. When the market turns, and it will, some of the other indicators will show us that the market is back. Sometimes, that is too late. Remember, buying low is also a principle not to take lightly. When the market shows signs of great health and it is being reported that the market is back on its feet, it also means that the prices have edged up. As the saying goes, if it is being reported, it has already happened. If you are hearing too much about the recovery, it has already happened. And since inventories show us one of the first pieces of data, we can use it as an early indicator of recovery. One that gives us some time to make that choice of when it becomes a good time to enter a marketplace, or if it is too late.
  • Investing in the real estate market has risks and is not for everyone. I am, by no means, suggesting this is for you. I am a trained professional, I do this for a living. If you would like more infomation regarding real estate investment, just let me know. You can also consult your accountant, attorney, Priest, Pastor, or Rabbi about the risks involved in investing. I am, however, available to answer your real estate related questions.

Leveraging

  • Leveraging is one of the most important tools in investing. Done right, it is the best way to maximize profits. I cannot stress this enough, it has to be done right.
  • Leveraging is when a portion of property, real estate or otherwise, is financed in order to use the debt to supplement investment. Meaning, the portion that is financed is used toward other investments. Most of the time, business owners will procure loans by using their business as collateral. The money from those loans are redirected back into the company in the form of inventory, research and development, expansion, or a great many other ways. This allows the value of the company to be stretched and utilized as a means to increase the value of the business. A farmer might mortgage the farm in lean years in order to invest in next year’s harvest.
  • That is one aspect of the leveraging model. The other side is very important to investors looking for a way to maximize profits. Say an investor has $50,000. He could buy $50,000 of, oh let’s say gold. Gold, incredibly hit $1,193.00 per ounce today! He could buy 41.91 ounces of gold with $50,000. In order for him to realize a 20% profit, he would need to see the gold rise to $1,431.64 per ounce, or a direct 20% increase in price. It could happen. It might not. If he was to put that same $50,000 into the purchase of an investment home, he would need to see that home’s value increase to $60,000 to see that 20% profit. It is not very like likely, even in this market that he would be able to find a home for $50,000. What he could do is use leverage. He could use the $50,000 for the down payment and buy a home for $250,000 and have an 80% loan to value on his mortgage. That scenario is more likely. Now, in order for him to see a 20% profit, his home would need to be worth $260,000. That would mean that the value of his home would only have to increase by 4%! That is a lot more likely than gold increasing by 20% during the same timeframe.
  • And that, is the power of leverage used correctly.
  • This sort of investing has risks and is not for everyone. I am, by no means, suggesting this is for you. If you would like more info, just let me know. You can also consult your accountant, attorney, Priest, Pastor, or Rabbi about the risks involved in investing. I am, however, available to answer your real estate related questions.

Over-Leveraging

  • Leveraging has gotten a black eye in this market downturn. Leveraging, or I should say, over-leveraging is at the root of the problem. It used to be that, in order to buy a home, one had to have a job, a pristine credit rating, and bring 20% of the home’s value to the closing table in order to qualify for a loan. Well, for a period of time, that all went away. In fact, it was mandatory for banks to provide financing to people that needed help buying a home. That opened the door to financing that allowed for some of the above criteria to be overlooked. It opened the door to the Sub-Prime mortgage. Some banks jumped on board and started figuring ways to profit from this mandate. That process is complicated, so I won’t go into the whole thing. Suffice it to say, banks handed out these loans to people who knew they couldn’t get a loan due to one thing or another. If they didn’t have pristine credit, they would be willing to pay a little more up front in order to procure the loan. If they didn’t have 20% down, they were willing to pay a little more in mortgage insurance up front in order to procure the loan. If the borrower didn’t have a job , they would still qualify for a “stated income” loan product. This meant they could, no kidding, “state” what their income was! They didn’t have to prove it, just “state” it. Banks knew this, in fact, banked on it. Some, not all, lenders fed on these situations. They offered loans that they were quite certain the borrowers had no business getting. They offered them because they knew that they were going to pad the front end with fees and make out like bandits. Bandits usually end up in jail or hung. They got hung by the fact that the borrowers had no business getting these loans and guess what? They defaulted on them. Foreclosures were eminent. The situation was compounded by the fact that most of the homes were overvalued and by the time people wanted out, the home was worth less than what they bought it for. It just snowballs from there. By providing these people with loans 95%, 100% and even 125% of the home’s value, there isn’t much wiggle room for the owner. The options fly out the door, along with the furniture and appliances. This is all caused by over-leveraging.
  • Leveraging is what has made America wealthy. Leveraging is what helps a small business owner grow their business into a market leader. Leveraging is what has helped farmers maintain their businesses during the good times and bad. Over-leveraging can destroy an entire economy.
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