Profit Killing Mistakes For Flippers

Four Profit Killing MistakesFour Profit Killing Mistakes created by Asset Based Lending

Buying a Home in a Hot Market

Looking for a home in 2017 may require determination, a bit of luck and a firm grasp of basic principles, but it is not an impossible dream, even in a market with relatively low inventory and high demand. In fact, if you’re looking for home in the Fresno area, this may be a great year for finding exactly what you want — if you spend some upfront time getting your ducks in a row before wading into the buying pool. If you’re a first time buyer, you’re not alone. Actually, according to realtor.com,you will be in the majority in 2017 for the first time; 52 percent of home buyersare expected to be first timers this year, and 61 percent of those buyers areexpected to be under age 35. However, when there are more potential buyers than there are homes on the market, how can you maximize your chances of winning the bid for the home you want?

Set Yourself Apart

The same study notes that first-time buyers are concerned about the financial aspects of buying, and justly so, both the down payment and the monthly obligation. The best thing you can do — before you start looking at online home listings — is to consult with a lender as well as a real estate agent. Even though there are some handy guidelines to help you evaluate your finances,there is no substitute for a face-to-face meeting. Your ability to qualify for a mortgage will be determined by income, job stability, credit rating, and overall debt ratios. A pre-qualification letter is a first step, meaning that you have presented a lender with your pertinent financial data, and the overall prospect looks good for beginning a home search.If you are really serious about buying, however, take the next step: Get Pre-Approved. Complete the loan application – know exactly how much you can afford, the required down payment, and any additional funds you might need for moving expenses or repairs. Keep an eye on interest rates. Even though mortgage interest is expected to remain relatively low throughout thecoming year, some increases are certain. Even a quarter percent rate hike can make a big difference in monthly payment.The pre-approval will give you the confidence to act quickly and is a definite plusin a seller’s mind.

Don’t Look for Perfection

Especially in a tight or volatile housing market, prospective buyers are advised to be flexible when it comes to “move-in ready” properties. A recent study by marketing giant Zillow found that “more than half of all homeowners purchased a property that needed updates” and that only 18 percent ofbuyers found a home that had recently been remodeled. As you begin your search for a dream home in Fresno, you might also want to give yourself a “cheat sheet” so that you have a ballpark idea of what some popular home improvements will cost — whether it’s repainting a room, installingstylish new flooring, or replacing kitchen appliances or countertops. In addition to updates designed to save energy and personalize a home, exterior landscaping improvements are among the most popular homeowner projects. Weigh your priorities as you view potential homes; and be realistic about the kinds of projects you would consider. Over time, according to the statistics, a typical home buyer completes 6.7 home improvements. Reasons vary: Budget considerations at time of purchasesometimes necessitate improvements later, but updates also can simply be the desire to “make a house a home.”

Know the Trends

The more you know about your local real estate market, the more confidence youwill have to act quickly when you find an acceptable property. Based on pertinent statistics in our area, home prices will continue to appreciate, but at a slower rate than in 2016. Interest rates will trend higher in coming months, and availability will remain tight. It also helps to pay attention to national trends. Eight expert predictions, outlined in a recent Forbes article, provide interesting insights. Look for improvement in housing supply, but not abundance. It is likely to remain a “sellers’ market” for some time, say the pros, as demand continues to increase. Millennials will continue to fuel the expanding home buying market, but growing numbers will also look to renting as a lifestyle choice. Finally, competition is not expected to abate in 2017; if anything, average days on market of for sale homes is expected to decrease nationally for the third straight year. If 2017 is your year to buy, approach your home search systematically, with as much determination and flexibility as you can muster. Be prepared to act quickly; know that you will very possibly have to make multiple offers before you win a bid, and don’t get discouraged. Home ownership is still the American dream, and it is certainly attainable with theright preparation.

 

Home Flipping in Fresno is Still Hot!

In early 2016, Trulia ranked Fresno as the second hottest house flipping market in the nation. At that time, flips comprised 7.6 percent of the local real estate market. This year, Fresno remained within the top five most active flipping markets nationwide. Fresno flips grew .3 percentage points over the past year and now comprise 8.2 percent of all homes on the market.

National home flipping activity saw its first uptick in three years to reach 6.1 percent of the market. Meanwhile, home prices rose the most since 2006 at 5.9 percent year-over-year growth. That is the largest year-over-year home price jump seen since the mid-2000s.

Fresno Flips and Home Prices

Flipping is regarded as both positive and negative for the housing market. On one hand, more investors in your area likely means you reside in a strong housing market with profit potential. But, when flipping becomes too prevalent, it promotes inflated home prices. This can lead to an overheated market, which can eventually turn into the dreaded bubble.

Flippers target emerging markets because rising home prices act as a safety net in case renovations fail due to budget or zoning issues. However, when many investors purchase large portions of the real estate stock and sell them off quickly at higher prices – without improving the structure itself – the overall market becomes more expensive. In a housing market bubble, homes cost more than their true value. Ordinary buyers pay premiums, and if the bubble bursts, end up underwater on their mortgages because they owe more than their home is worth.

However, Trulia’s economists say the current flipping market in Fresno isn’t cause for concern. Fresno home prices grew 4.5 percent over the past year, so it’s not much of a surprise that flipping is hot. Plus, Fresno is far off from its flipping peak in 2013. Just four years ago, flips comprised 9.5 percent of the total real estate market.

In addition, the correlation between growing home prices and rising flipping activity is not as strong as it was in previous years – particularly periods where the market was severely down or largely overvalued. After home prices bottomed out in 2013, the relationship between flipping and home prices peaked at 0.6 on a scale of -1 to 1, where both extremes indicate a strong relationship. Today, the correlation is a healthy .25, considerably softer than it was during the bubble years when the relationship floated between 0.5 and 0.6.

Controlled and authentic home flipping offers benefits for many home buyers in Fresno. With a greater selection of renovated properties, buyers avoid the headache of undergoing repairs on their own time.

By Jennifer Riner, Trulia

Fresno Home Flipping Is Still Popular

According to Trulia, Fresno is among the best cities for flipping houses. House flipping is a practice that some believe is an indicator of an over-heated housing market. Nationally, it made up a stable of all home sales during the past year, mirroring a steady increase in home prices.

House flipping is a unique housing market metric for two reasons. First, it is a speculative undertaking where investors are betting on turning a profit, and has historically occurred at high rates just before a market peaks. Second, flipping usually entails removing a home from a particular price point in the market and moving it to a higher price point through improvement. That movement creates competition for homebuyers who may be looking to build sweat-equity on their own. But flipping activity also provides improvements to the housing stock for buyers who don’t have time or cash to improve a home themselves.

In the third quarter of 2015, flipping activity held steady year-over-year at around 5% of all home sales. This is down from a peak of 8.6% of all home sales in the first quarter of 2006, but up from a low of if the third quarter of 2008. Why has flipping peaked and troughed over the years? Intense home price fluctuation due to the Great Recession. Selling houses for a gain over a short period generally requires modest price growth at minimum. Even though flippers can add value by improving the quality of a home, rising prices provide a safety net when taking on a project. When prices are rising faster, flippers have greater opportunity to come out ahead even if the project doesn’t go according to plan. Over the past year, price gains have remained relatively stable, and so have flips. This is stark contrast to rising year-over prices from 2003-2006, when flips increased sharply from 5% to nearly 9% of all home sales.

Though flipping has remained relatively stable nationally, flipping activity varies significantly across individual markets. Las Vegas, Nev. leads the pack with 10.4% flips, followed by Fresno, Calif. and Daytona Beach, Fla., with 7.6% and 7.3%, respectively. Detroit and Louisville, Ky., have the lowest share of flips at less than 2.5%. – See more at: http://www.trulia.com/blog/trends/flipping-point-2016/#sthash.ZHMZGBOK.dpuf

Homeowner Legislative Update

Bill to Stop Tax on Loan Modifications Passes Legislature – updated 7/17/14
If the principal on your mortgage was reduced with a loan modification new legislation may lower taxes.
The Legislature has passed AB 1393 (Perea), a bill that will prevent homeowners from being charged state income tax when they’ve had a mortgage loan modified to reduce the principal. Under current law, the forgiven debt created by a reduction in principal as a result of a loan modification isn’t subject to federal income tax, but is currently taxable under state law. The bill has been passed by the state Legislature and awaits the Governor’s signature. If signed, it will become effective immediately and is retroactive to January 1, 2014. This is great news for homeowners. The CALIFORNIA ASSOCIATION OF REALTORS® supports this measure.
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How Citigroup Settlement Affects Borrowers – updated 7/17/14
Citigroup settlement to provide money for consumer relief.

Citigroup has recently reached a $7 billion settlement with the U.S. Department of Justice for its role in the mortgage market meltdown. Of that, over $2.5 billion is set aside nationwide for consumer relief. Here’s some great information in the San Jose Mercury News about how the settlement affects California homeowners who had loans underwritten or serviced by Citi and what to do if you may be eligible to file a claim.
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Coastal Commission Suit May Set Precedent Affecting Property Rights – updated July 7/17/2014
Lawsuit affecting property rights to be considered by Court of Appeals.

A lawsuit involving the California Coastal Commission, which regulates property in the coastal zone, is scheduled to be heard soon by a San Diego Appeals court. Because the decision will be made by an Appeals court, it may eventually affect property owners up and down the coast. Two homeowners in Encinitas had applied to the Coastal Commission for a permit to rebuild a sea wall damaged in a storm. In order to receive the permit, the Coastal Commission required that the permit application be re-submitted in twenty years. If the permit was then rejected, the homeowners would have to then take down the sea wall. The property owners filed suit to nullify that requirement. A local judge deciding the initial case referred to the Coastal Commission’s requirement as a “power grab.” Learn more about the case in the Los Angeles Times.
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Pro-Consumer, Anti-“Shill Bidding” Bill Considered in Senate – updated 6/20/14

Real estate auction companies increasingly are being used to sell real estate.  Some lenders require homeowners to agree to use an auction company to see if the property fetches a higher price at auction before a short sale offer will be accepted. One aspect of the auction that is not commonly known is that the auction company may place a bid on behalf of the seller – or a “shill” bid – to artificially drive residential and commercial property prices up.

The CALIFORNIA ASSOCIATION OF REALTORS® is sponsoring AB 2039 (Muratsuchi), which would prohibit “shill bids” and make clear that only legitimate bids may be placed on behalf of a seller; otherwise, the seller bid must be disclosed to the all bidders as a bid which cannot be accepted to complete the sale of the property.  The measure has passed the Senate Judiciary Committee but faces stiff opposition from the auction companies.
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Legislature Reviews Bill to Allow Seniors and Disabled to Postpone Property Tax– updated 6/20/14

Until 2009, the Senior Citizens and Disabled Citizens Property Tax Postponement Law allowed the Controller to postpone payment of property taxes for those qualified property owners who applied for the program. AB 2231 has been introduced to re-establish the Senior Citizens and Disabled Citizens Property Tax Postponement Fund within the State Treasury. AB 2231 provides individuals who are on a fixed income, such as senior citizens or disabled individuals, a program to which they can turn for assistance with paying their property taxes, allowing them to stay in their homes.  Beginning on July 1, 2015, qualified individuals with at least 40% equity in their home may file a claim with the Controller to postpone the payment of their property taxes. Applications will be accepted until January 1, 2016, and the postponed tax amount will be filed as a lien against the property. AB 2231, which is supported by the CALIFORNIA ASSOCIATION OF REALTORS® is being considered by the state Senate.
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Bill Introduced to Prevent Homeowner Associations from Imposing Unnecessary Document Fees – updated 6/20/14

Often, when purchasing a home in a common interest development (CID) like a condominium, the Home Owners Association, in an attempt to generate more revenue, will “bundle” unnecessary documents with those that are actually required and then charge excessive fees for the “bundle.”  AB 2430 (Maienschein) will provide more specific document delivery and disclosure standards and tighten the anti-bundling provisions in connection with condominium sales and HOA document delivery requirements so that those buying or selling homes in CIDs aren’t charged for more documents than are required. This bill is sponsored by the CALIFORNIA ASSOCIATION OF REALTORS®.
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Legislature Considers Bills to Prevent Fines for Underwatering Landscaping updated 6/20/14

Under current law Homeowners Associations (HOAs) can create rules and regulations dictating the responsibilities of separate interest owners to maintain their yards and can impose fines if these rules are not followed. Two bills currently being considered by the state legislature, AB 2100 and SB 992, would prohibit an HOA from imposing fines for under-watered lawns and plants during a period for which the Governor has declared a drought emergency.  Proponents of the measures believe residents of HOAs in CIDs should be permitted to undertake landscape modifications that foster more efficient water usage without risking a monetary fine by the HOA. The CALIFORNIA ASSOCIATION OF REALTORS® supports these measures.
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Homeowner Legislative Update

Homeowner Tax Proposal Abandoned – updated 6/1/14

The proponents of a bill that would have imposed a new tax on homeowners has declared defeat and has abandoned the bill for the year, vowing to try again next year. The bill would have created a tax that would be imposed on homeowners who need to record certain documents with their counties This $75 per document tax would have been imposed on a variety of documents, which would include, for example, documents related to refinancing properties, taking properties in and out of trusts, making lot line adjustments, obtaining constructions loans and upon the death of a spouse. The tax also would have applied to foreclosures (the owner would be responsible, not the lender) and filing mechanics liens. For instance, it’s not untypical in a refinance, for six documents to be subject to the new tax, resulting in a tax of $552, in addition to current recording fees. If a spouse dies, up to five documents need to be recorded, creating a tax of $440 on top of existing recording fees.

The California Association of REALTORS® is opposing this bill.

 

IRS Further Clarifies Stance on Forgiven Debt in a Short Sale – updated 6/1/14

Last fall, the IRS and the state Franchise Tax Board issued letters stating that California families who have sold their home in a short sale are not subject to either state or federal income tax on the forgiven debt. Recently, the IRS, claiming that its original letter had been “too broad,” issued another letter to clarify that under some circumstances (e.g., cash out equity lines)  the debt forgiven in a short sale is still taxable. Homeowners who have sold their home in a short sale are strongly urged to consult with a tax professional to determine what, if any, tax they owe.

In a short sale, homeowners sell their homes for less than what is owed. If a lender agrees to the sale, the lender is forgiving a certain amount of the loan principal. Before these clarifications, requested by Senator Barbara Boxer and Board of Equalization Member George Runner on behalf of the California Association of REALTORS®, it was not entirely clear that homeowners wouldn’t lose their homes and then be faced with a large tax bill as well. Homeowners with questions about taxes and short sales should contact their tax professionals.

Mortgages to Remain More Affordable – updated 6/1/14

The Federal Housing Finance Agency (FHFA), the federal agency that sets the maximum mortgage loan limit for what are called “conforming” loans, typically the most common and often the most reasonably priced loans. “Conforming” loans are those loans that meet certain federal guidelines and therefore enjoy the benefit of lower interest rates. The vast majority of mortgage loans – over 64% of mortgage loans obtained nationally – are “conforming” loans.

Late last year, the previous Acting Director of FHFA had indicated that the agency would be substantially reducing the loan limits, forcing many home buyers to obtain loans with higher interest rates. The National Association of REALTORS® and the California Association of REALTORS® both aggressively fought the proposal.

In the last few weeks, Melvin Watts, the new Director of FHFA, has announced that the agency will not be reducing the loan limits, helping make homeownership accessible to more families.

Legislature Proposes Limits on Going out of Business – updated 6/1/14

Existing law prevents local governments from forcing rental property owners to continue in the rental business. SB 1439, a bill proposed by Sen. Mark Leno of San Francisco, would require that a rental property owner have owned the property for five years before the property can be converted to another use. For instance, if a homeowner owned an apartment building and needed to move aging parents into a unit, they would be unable to do so unless they had owned the property for at least five years. SB 1439 does not take into account individual families’ financial or personal circumstances. SB 1439 was recently passed by the state Senate and now will be considered by the Assembly. The California Association of REALTORS® is fighting this attack on private property rights.

Homeowner Legislative Facts

Legislature Considers Tax on Homeowners – updated 3/25/14

The state legislature has been considering a tax that would be imposed on homeowners who need to record certain documents with their counties This $75 per document tax will be imposed on a variety of documents, which will include, for example, documents related to refinancing properties, taking properties in and out of trusts, making lot line adjustments, obtaining constructions loans and upon the death of a spouse. The tax also applies to foreclosures (the owner would be responsible, not the lender) and filing mechanics liens. For instance, it’s not untypical in a refinance, for six documents to be subject to the new tax, resulting in a tax total of $552. If a spouse dies, up to five documents need to be recorded, creating a total tax of $440 including existing recording fees.

SB 391 is in the Assembly Appropriations Committee. The CALIFORNIA ASSOCIATION OF REALTORS® is opposing this bill.

Draft Tax Plan Would Limit Homeowners Tax Deductions — updated 3/25/14

Rep. Dave Camp, Chair of the House Ways and Means Committee of the U.S. House of Representatives, recently unveiled a large-scale plan to overhaul the federal tax code. Included in his draft proposal was a significant limit on the mortgage interest deduction. Over four years, the amount of mortgage principal on which interest is deductible would be reduced from the current $1,000,000 to $500,000. According to the National Association of REALTORS®, this would apply only to new loans.  In many areas of California, homeowners who would have struggled to purchase even the median priced home would be unable to take the full deduction for their mortgage interest and therefore might be priced out of the market. The draft plan also calls for the elimination of the deduction for property taxes.

The plan is currently in draft form, meaning that no bill has yet been introduced in the House of Representatives.

For more information, see the following opinion editorial published in the US News and World Report: http://www.usnews.com/opinion/economic-intelligence/2014/03/19/tax-reform-plan-goes-the-wrong-way-on-housing

President Obama signs Flood Insurance Bill into law — updated 3/25/14

On March 21, 2014, President Obama signed the “Homeowner Flood Insurance Affordability Act” into law. This law repeals FEMA’s authority to increase premium rates at time of sale or new flood map, and refunds the excessive premium to those who bought a property before FEMA warned them of the rate increase. The bill limits premium increases to 18 percent annually on newer properties and 25 percent for some older ones. Additionally, the bill adds a small assessment on policies until everyone is paying full cost for flood insurance.

Homeowners with questions about flood insurance should contact their insurance agent.

Short Sellers Won’t Be Taxed on Forgiven Debt — updated 3/25/14

In a short sale, homeowners sell their homes for less than what is owed. If a lender agrees to the sale, the lender is forgiving a certain amount of the loan principle. The IRS and the state Franchise Tax Board have recently issued letters clarifying that California families who have lost their home in a short sale are not subject to either state or federal income tax on the forgiven debt. Before these clarifications, requested by Senator Barbara Boxer and Board of Equalization Member George Runner on behalf of the CALIFORNIA ASSOCIATION OF REALTORS®, it was not entirely clear that homeowners wouldn’t lose their homes and then be faced with a large tax bill as well. Homeowners with questions about taxes and short sales should contact their tax professionals.

Law Requiring Water-Conserving Plumbing Fixtures Goes into Effect — updated 3/25/14

A law calling for the replacement of older plumbing fixtures with water-conserving ones went into effect on this year. The law says that, as of January 1, 2014, when improving a property new water-conserving toilets, showerheads, faucets and urinals must be installed before the local building department will issue a certificate of final completion and occupancy. The plumbing fixtures that will need to be replaced are: any toilet manufactured to use more than 1.6 gallons per flush; any showerhead manufactured to have a flow capacity of more than 2.5 gallons of water per minute; any interior faucet that emits more than 2.2 gallons of water per minute and any urinal manufactured to use more than one gallon of water per flush. Homeowners with questions about their individual fixtures are urged to contact the manufacturers.

Register to Vote — updated 3/25/14

Recently moved? Don’t forget to re-register to vote. Those elected to federal, state and local office make decisions that affect you every day, from the taxes you pay to the quality of your schools. Many races are decided by just a handful of votes so it’s essential that all those eligible to vote do so. California’s primary election is June 3, 2014 and the deadline to register to vote is May 19.  You can register to vote here: http://www.sos.ca.gov/elections/elections_vr.htm

What’s Ahead For Fresno Housing Market in 2014?

Well, 2013 was an amazing year for property value comeback. We had an approx. 13% increase in property values overall. This really helped because we lost so much in the downturn for a few years. The market activity really peaked in mid summer, and there has been a very slow but steady decline of sales activity ever since. 2014 is starting out, with relatively low inventory of available homes, which is keeping the values strong, but I do believe that this will change as people realize that they can sell now because they have gained some equity. I know that there is “pent up” demand for people that want to sell their homes, that have been waiting on the sidelines for their values to increase. Well now is the time if ever, to put that home on the market in 2014. Most analysts are predicting single digit appreciation in 2014, so it wont really pay to wait and see. There have also been some changes in the mortgage industry, that will affect the market. For one, FHA has lowered their maximum mortgage amount from $381,250 to $281,250. and FHA had earlier in 2013 raised their mortgage insurance premium costs. This is unfortunate, because Fresno is a huge FHA market with approx. 70% or transactions getting FHA loans. On the other side, conventional financing is many time more attractive with slightly higher 5% minimum down payments. Interest rates are definitely on the rise in 2014 and their have been other important changes in qualifying for a loan. Starting tomorrow Jan. 10. 2014, new lending guidelines, referred to as QM, which stands for “qualified mortgage lending and borrowers ability to repay”. Borrowers must have a maximum 43% debt to income ratio, and they are not considering “compensating factors”, such as a higher cash down payment, assets or money reserves in the bank. It’s all about your income and debts and credit scores period! So if your in the market to buy a home and have been pre-qualified, you really need to meet with your lender again to get a conditional loan approval. Policies have changed now and we need to make certain buyers can qualify under the new guidelines. I look forward to working with more sellers and buyers this year, particularly the “move up” type buyers. I believe that the investors flipping homes is slowing down, because their are fewer opportunities in foreclosures, so 2014 could be the year for “move up” buyers to sell their homes and buy up or downsize. Cash is still king!

Fresno Home Market Trend For Fall 2013

TGChartImage

The Fresno Market is showing is showing signs of a slowdown now. As you can see from the graph above, the “Pended” sales, which is the red line indicating accepted offers is on a downslide, as well as the dark green, which is the closed sales. You can see that the MLS active inventory is increasing, by the light green bar showing approx. 1283 active listings at this date thru October 2013. From other analysis, our prices of homes in the Fresno/Clovis area have increased 13.7% since the beginning of the year 2013.

The graph below, shows the “months inventory” at this time. We currently have a 2.8 months of inventory based on closed sales VS current inventory numbers.

Months inventory

Fresno Home Prices: Home Prices and Fresno MLS Inventory on the Rise

Good news on the active home listing inventory, as we now have over 1000 listings of single family homes and condominiums currently active in the Fresno MLS system and the trend is now towards an increase inventory and this is happening in other California cities as well as Fresno and Clovis. This is higher than a month ago, or 3 months ago when the inventory was at 775. I think we are turning the corner on inventory and we are going to see a slow and steady increase in inventory. The gain in inventory, is related to the increase in home values, which are making it possible for many sellers to sell now after declining values of past couple of years. Interest rates have also gone up about 1 percentage point over the past couple months. The combination of these two factors are bringing the realization that it really is a good time to sell for many sellers. Unfortunately this could also be somewhat of a bubble effect, due to supply and demand. Prices may level off and stay flat because the overall economy is still weak and unemployment numbers are still high. We need about 2500 homes on the market to be more balanced with the current demand, so we have quite a ways to go yet, but the rising inventory I believe is a positive sign for home buyers. It has been so difficult for home buyers over the last two years, with bidding wars on nearly all clean listings.