You can hire a real estate company to just “lease” your property for 5-6% of the lease amount obtained or (in some cases) 50% of 1 month’s rental amount (referred to as “1/2 month’s lease-up”).  In this case, you would either put a home warranty plan in place to take care of any repair needs that come up or you would call on repair people yourself when things break.  These days, you can use websites like Yelp and  to help you find reliable, recommended contractors in just about any area of the country.  Beyond taking care of needed repairs, there is very little reason to “hire” a property manager at all.  If a tenant gets locked out of the property, they can call a locksmith.  If they lose their mailbox key, you can mail them a spare.

You might need a leasing agent to find the initial tenant for your property, but once you “have” a Tenant in place, you can work with that Tenant to help you find a new one once they give notice to vacate.   Offer your Tenant a discount on their last month’s rent in exchange for them showing the property to any new prospective tenants who want to see it.  Advertise your unit for 5% less than the going rate in the neighborhood.  The Tenant will be more cooperative (because they are getting a discount on their rent) and you will be all but assured of finding a new tenant to take over almost immediately after the old one leaves, leaving only a “minimal” gap in rental income.  Regardless of your leasing strategy, offering a lower rent (than average) is always a good idea for the following reasons:

• You will have a larger pool of candidates to choose from
• You have a better chance of finding a replacement tenant quickly (reducing or eliminating the gap in Tenancy)
• You inevitably end up with a Tenant that stays longer because they feel like they’re getting a “deal” on rent.  Each time you have to turn the unit over (change tenants), you will have repair and maintenance costs.  Therefore, you end up saving money in the long run because of this lower “turnover” rate.

If you execute this strategy, all you will have to do is show up for the move-out walkthrough with the old tenant, arrange any cleaning and repairs, and meet the new tenant for the move-in walkthrough.  All of this can happen within a period of a few days and your travel expenses (flight, rental car, hotel, etc) will be tax deductible.

On the management side of things, the 2 biggest questions are whether to use a Home Warranty Plan for repairs and how to handle a situation where you have to evict the Tenant.

With a Home Warranty plan, many home repairs are covered and you don’t have to search for reliable, local trades people.  However, you still have to pay the annual cost of the Home Warranty plan (typically $350-$500) + a $55-$60 deductible for each repair that needs to be done.  It’s generally  advisable to “have” a Home Warranty plan the “1st” year that you own a property.  But for small repairs (such as a toilet not flushing or a dishwasher not working), I find that it “doesn’t” typically pay for itself.  Therefore, the biggest reason to utilize it is to save the time, energy, and effort of finding competent trades people and arranging the repairs.  If you don’t mind spending your time with this task a couple of times each year, you will probably save money by managing the repairs yourself (versus using a home warranty plan).   If you “do” go with a home warranty plan, make sure that you read the fine print of the home warranty company’s policy before signing up for it.  There are often exceptions, such as the water heater not being covered if it’s more than 10 years old or the refrigerator’s “icemaker” not being covered.

As far as Tenant evictions, you can handle “part” of this process through the mail by sending notices (such as Notice To Pay or Quit, Notice To Vacate, etc) by registered mail and/or through a local process server.  That way you would only have to show up for the court hearing which will ultimately give you the legal right to have the Police remove the problem Tenant.  If you do a good job of screening your tenants (including criminal background check, credit check, and checking references), you will greatly minimize the possibility of accepting a problem Tenant.

If you’re considering a Real Estate investment, there are many ways to minimize the cost of managing that property.  In many cases, you won’t be able to afford a local investment property and you will “have” to go outside of your area.

Don’t be afraid to make that leap, but in order to make that investment worthwhile, make sure that you have a solid long term strategy for the remote management and leasing of that property.

A total of 7,263 new and resale houses and condos sold in the 9-county San Francisco Bay Area in March. That was up 34.4% from 5,404 the previous month, but “down” 6% from 7,723 in March/2012.  It’s normal for sales to jump between February and March, with that gain averaging 39.5% since 1988. March sales have ranged from a low of 4,898 in 2008 to a high of 12,645 in 2004. This past March’s sales were actually 17.1%  “lower” than the March average of 8,758.

In March, the median price paid for a San Francisco Bay Area home was $436,000, which was up 7.7% from February and up 21.8% from March of 2012.  The median price has risen on a year-over-year basis for 12 consecutive months, with double-digit year-over-year gains the last 10 months and increases above 20% for the past five months.  Still, the March avg. price was 34.4% lower than the $665,000 peak in June and July of 2007. In March/2009 the median hit its post-peak low of $290,000. That dip was an extremely low level for the San Francisco Bay Area, reflecting both widespread price declines as well as robust sales of heavily discounted inland foreclosures at a time when high-end sales were all but dormant.

Well over half of the 21.8% year-over-year increase in March’s median sale price reflects rising home prices. As most people know, prices have risen as a result of record-low interest rates and growing demand meeting an exceptionally low supply of homes for sale. However, a portion of the March/2013 median’s year-over-year gain has also been due to a change in market mix. Sales of low-cost distress homes have fallen sharply, while sales of pricier move-up homes have shot up.

Higher sales in the middle and top of the housing market reflect improved consumer confidence, ultra-low mortgage rates, and the unleashing of more pent-up demand than many anticipated. There’s been a shift in psychology, where more people worry that prices will rise and fewer fear a decline. This has drawn a lot of folks off the fence following a long stretch of sub-par sales (in the late 2000’s), especially in the higher price ranges. In the more affordable markets, there has been a big drop in foreclosures, which limits the supply of homes for sale.

Foreclosure resales accounted for just 10.7% of San Francisco Bay Area resales in March, down from 14% in February, and down from 25.5% a year ago. March’s level was the lowest since foreclosure resales were 10.1% of the resale market in November/2007. Foreclosure resales peaked at 52% in February 2009. The monthly average over the past 18 years is 10.2% .  Even short sales are now on the decline. Short sales made up an estimated 19% of San Francisco Bay Area resales in March. That was down from an estimated 20.5% in February and down from 23.8% a year earlier.

Some San Francisco Bay Area homeowners are still under water with their homes. As prices rise, more homeowners are likely to put their homes on the market.  This pent-up demand among potential sellers will motivate many to move as soon as it makes sense.  Inventory is already on the rise.  A 75% jump in inventory since the beginning of this year has put us back to the inventory level we were at in October, although that is still a relatively (very) low level of inventory.  We will need a more substantial jump in inventory to moderate the currently surging San Francisco Bay Area home price growth, especially with the prevailing record-low interest rates that we have.  However, if inventory does continue to rise and mortgage rates also begin to rise, the upswing in San Francisco Bay Area home values is likely to slow down significantly.

Mortgage refinancing has been a major factor in the Real Estate recovery these past 2 years.  Most homeowners have taken advantage of historically low-interest rates through a rate and term refinance.  Some have even shortened the length/term of their mortgage while maintaining a lower monthly payment.

When mortgage rates collapsed from the 5% level in early 2011 to the low of 3.25% last year, it created a series of serial refinances and Harp 2 borrowers who jumped on this historical economic event.  Rates have moved back higher so far this year and many wonder if we have already seen the bottom (last year).

We hit the low point in the 10-year Treasury note yield last year after the Euro zone crisis spurred the 10-year note to break slightly under 1.4%.   Unless we have another major financial catastrophe in the world some time soon, we have probably seen the low point in the yield of the 10-year treasury note. Thus, rates should be rising from now on.   There will likely be some pull backs since the Fed is stilling buying mortgage-backed securities for 2013.  There is some concern that we might get a spike in the 10-year treasury note. However, there seems to be just a “slight” possibility of a “spike” in rates. We are unlikely to be punished for our government debt load in 2013. Those consequences will more likely be coming a few years down the road.

Thus, the Mortgage Refinance boom appears to be over.  Origination volume in 2012 was very high due to the historically low rates.   We probably won’t see that type of mortgage loan volume again unless rates break under 3%.  Even with the Fed promising to buy mortgage-backed securities, that lower break is unlikely to happen. If conventional conforming Mortgage rates get to 3.75% and stay above that range, the pool of available refinance candidates will be small from here on out.

There are still “some” people who are yet to refinance, but not nearly in the high numbers we saw last year.  For 2013, refinance origination will clearly be lower but the real trouble could come in 2014.   The Fed will likely call an end to mortgage-backed securities purchases, which will push rates toward the path of normalization, or more toward the 6% level years from now.  The Fed has already expressed concern about their 3 trillion dollar balance sheet.  And that balance sheet will be more than “4” trillion dollars in less than a year.  By the middle of 2014, the Fed is likely to be raising short term rates.

Consider the following potential future effect of all these low mortgage rates captured by American homeowners:  

There are many homeowners who have locked in very low (cheap) money for 30 years.  Down the road, if they want to move by first selling their home, they would lose that inexpensive mortgage and would likely be looking at a much higher interest rate for their next home.   Unless home prices have dropped dramatically, or they are scaling way down in size, their monthly payment will rise, probably substantially. This would have a major affect on their decision to move or not.   Would some decide to hold onto their first house and turn it into a rental, while buying another home?  It’s not easy to rent a home and qualify for another mortgage on top of that, as well as coming up with the liquid assets needed for a down payment without selling your existing home.

So, years out there will be many Americans thinking about this problematic situation. Some may not even qualify for a mortgage when rates normalize to 6% or higher.   In the short run, this recent refinance boom has certainly brought disposable income into the hands of those who could refinance.  This extra disposable income may have helped the consumer economy a bit.  It has also made home buying much more affordable.  However, perhaps the overall state of the housing market has not actually changed.  Perhaps the core problem in housing is still with us.  We don’t have enough qualified home buyers to cause a “natural” rise in prices or expansion of homeowners (excluding cash buyers).  Until we get real/natural positive changes in our economy (more job growth, higher incomes, better liquid asset profiles for first time and traditional home buyers, etc), we may be in the same boat we were in before interest rates started to plunge in 2011.

As the Bay Area’s prime home buying season begins, a wide array of market forces is making this spring one of the toughest times in memory to purchase a home.  Fiercely competitive investors and cash buyers continue to compete against average buyers for a scarcity of homes for sale, bidding wars continue to run up prices, and problematic appraisals are further complicating transactions.  Many homes that would be purchased in a normal market by average buyers are ending up in the hands of cash-paying absentee owners, typically investors.

Despite the continued surge in the San Francisco Bay Area Real Estate market (for the 3rd straight year), there is at least one positive trend for Buyers. Peninsula and South Bay Residential Real Estate Inventory rose 6% in March. This is the 3 straight month that inventory has risen, totaling a cumulative 36% rise in inventory since the beginning of the year.  Sales continue to be hot, but the pace of listings coming on the market has more than “doubled” since the end of 2012.

Meanwhile, indicators of market distress continue to decline. Foreclosure activity is well below peak levels reached in the last few years. Financing with multiple mortgages is low, and down payment sizes are stable. Foreclosure resales accounted for just 13.6% of resales in February, down from a revised 14.1% in January, and down from 26.4% a year ago. February’s foreclosure resales were the lowest since 10.1% in November 2007. Foreclosure resales peaked at 52% in February 2009. The monthly average for foreclosure resales over the past 17 years is about 10%

February distressed property sales – the combination of foreclosure resales and “short sales” – made up about 35% of the resale market. That was down from 36% in January and down from 53.4% a year ago. Short sales made up an estimated 21.4% of San Francisco Bay Area resales last month. That was down from an estimated 21.9% in January and down from 27% a year earlier.

February’s absentee buyers (mostly investors) purchased 28.2% of all San Francisco Bay Area homes, a statistical all-time high (absentee statistics go back to January 2000). Buyers who appear to have paid all cash accounted for a record 31.9% of sales in February. That was up from 28.4% the month before and 31.5% a year earlier. The monthly average going back to 1988 is 12.9%.

Overall, the median price paid for a home in the 9-county San Francisco Bay Area in February was $405,000. That was up  a whopping 24.6% from $325,000 for February a year ago.

Things are trending in the right direction for Buyers right now, but inventory is still (relatively) low and stiff competition and continued low interest rates should keep the market hot through this peak period of the 2013 home buying season that we have now entered.

In my previous articles I have discussed the steps of getting pre qualified with a lender and submitting an offer on a home. What do you do once you have your offer accepted? With most real estate transactions once you have your offer accepted you will have a 10 day inspection period. I always recommend clients hire a professional home inspector to do a thorough inspection of the home. A standard home inspection is going to consists of inspecting the plumbing, electrical, roof, foundation, heating and air, and provide a detailed report.

The investment of paying for a home inspection is worth every penny. With a home inspection in hand I have been able to negotiate thousands of dollars off the purchase price for my clients. That’s not to say this will happen every time. But with a detailed written report it makes for a much stronger case when negotiating with a seller.

Inspections are also very important because while a home may visually look great, you just never know. There have been times when my clients have decided to cancel a transaction because the home inspection found too many problems. That small investment for a home inspection literally saved them thousands of dollars and many headaches.

The best place to find a reliable home inspector is a personal referral from your Realtor or friend. I would recommend working with an inspector that has many years experience and don’t be afraid to ask for references either. The quality of the home inspector is the key to success.

I would also recommend getting the home inspection done very early during your 10 day inspection period. I always try to schedule the inspection for my clients within the first couple of days. This is important so my client can have time to review the report and not make a rushed decision. Also with the extra time it will allow specialists like roofers, contractors, electricians, and structural engineers to inspect the property if necessary and provide estimates. Ultimately the inspection period is a great opportunity to make sure you are making the best decision and making a sound investment. Thanks for your time in reading and happy house hunting!

Becoming a first time home buyer can be scary for people because of the unknown. This is why it’s very important for first time home buyers to do their research ahead of time.

Thankfully the Internet has made this much easier. Once a new home buyer has done their initial research online the next step would be to speak with a mortgage professional. This is an essential step that many first time home buyers don’t even think of. This is important because a lender will be able to discuss the many loan options available, monthly payments, and provide a pre qualification letter stating the loan amount the buyer would qualify for.

Once the pre qualification letter is in hand then the fun part of viewing homes begins. My recommendation would be to decide on a general area first and then discuss with your Realtor the type of home you are looking for. This will make the process much easier and give you and your Realtor a great strategy to find the right home. I have had clients find their perfect home after just one day of viewing homes and some clients need several days. The bottom line is never feel pressured to purchase a home if you don’t feel it is the right fit. Every home buying experience is different and no one scenario is the same. When you do find the right home though be prepared to move quickly. In the Phoenix market especially if a home is priced right and shows well it can be sold within just hours from being listed. Again this is why it’s important to have already been pre qualified with a lender so you can have your paper work ready to go.

My last thought is that when you are going through this process the best way to avoid stress is to have fun while doing it. Avoid trying to see to many homes in one day. It can be very time consuming and after a few homes they may start to blend together and you can’t remember which home you liked the best. If you are going to make a full day of it be sure to stop for lunch and discuss the previous homes you saw and rate them on a scale of 1 to 10. I do this with my clients all the time and it’s very helpful and fun at the same time. We laugh about why they rank a certain home lower than others. Buying a home should be one of the most memorable and exciting experiences in a first time home buyers life. You only get to buy your first home once so have fun with it!

A new survey of past clients by youwalkaway.com (a website that assists borrowers in the legal pitfalls of strategic default) found that nearly 80% expressed a desire to buy a home again within the next 12 months. It also cites data by Moody’s analytics, showing that the number of eligible home buyers who have had a previous foreclosure will be 1.5 million by the first quarter of 2014.

Crashing home prices and sketchy mortgage products caused millions of Americans to default on their loans and eventually lose their homes. For some, it was a tragic fight to the end to keep their single largest investment; for others it was a conscious decision to walk away from their mortgage commitments, given the real fact that they would likely not see home equity again for many years to come. Some saw this as morally reprehensible, others as a sensible business decision.

While home ownership has fallen dramatically since the recent housing boom, from a high of 69.2% in 2004 to 65.4% at the end of 2012, the desire to own a home is still strong. 70% of Americans surveyed by Trulia.com said that home ownership was still a part of the “American Dream.” 65% of those surveyed by Fannie Mae in January of 2013 said that if they had to move, they would buy a home, rather than rent.

Coming back to home ownership may not be as difficult as some think. According to a 2011 study by TransUnion, Consumers who only defaulted on their mortgage during the recent recession were far better risks than those who went delinquent on multiple credit accounts, like credit cards and auto loans. According to that same study, there appears to be a pocket of opportunity among mortgage-only defaulters that is not the result of excess liquidity, but rather the unique circumstances of the recent recession. This new market segment that the recession created is an important one for lenders to understand. They have the potential, today, to be stronger and more reliable customers.

Not surprisingly, given this potential, youwalkaway.com is launching the “AfterForeclosure.com Pass/Fail App,” which claims to tell potential borrowers in just one minute if they have a shot at home ownership.

It “is” possible, but mortgage underwriting is far more strict today than during the housing boom, and there are varying waiting periods before former homeowners who went through foreclosure can qualify for a new loan. The FHA (Federal Housing Administration)  requires a 3-year wait, while Fannie Mae and Freddie Mac (which own or guarantee the bulk of the remaining new loan originations) require 2 years after a short sale (if the Buyer will put at least 20% down payment) and 4 years after a foreclosure (if at least 20% down payment)

January saw a slight (~10%) increase in inventory, while February saw another ~20% increase above January. This brings our inventory level back up to where it was around the middle of November of last year (before it had proceeded to drop to it’s lowest level in recorded history by the end of 2012). This should come as a relief to the many buyers who have been experiencing the full force of a Bay Area seller’s market with demand far exceeding supply.

Meanwhile, the Bay Area housing market turnaround trend continued its torrid pace with the strongest January sales in 6 years and the 10th straight year-over-year increase in the median sale price (adding up to a 27.3% year-over-year gain for the Bay Area as a whole).
The Bay Area January Sales Volume was down 28.4% from December, but up 3.2% from January/2012. Sales “do” typically drop from December to January and January’s sales count was actually the strongest January since 2007. At least half of the (27.3%) year-over-year increase in the January median is the result of changes in market mix, with sales shifting away from low-cost distress homes toward more mid-market and move-up homes. The number of homes sold for less than $500,000 in January fell 17.9% year-over-year, while the number sold for more than $500,000 increased 45.4%

While some read recent home price gains as a sign of an improving market, others warn that the recent gains are “unsustainable” and may actually be dampening market recovery. Radar Logic (a housing research and analytics company) attributes recent home price gains to anomalous factors that it considers temporary, including low interest rates and elevated investor demand. None of these drivers are likely to last, particularly as housing prices increase They anticipate that prices will decline again as rising prices begin to repel investors while simultaneously leading to bursts in supply as homeowners and financial institutions feel encouraged to list properties for sale. Home builders have already begun to add to supply with a 23.6% rise in single-family housing starts year-over-year in January. However, when prices start to decline again, the market may once again attract speculative demand and chill starts and sales. Prices could follow such a saw-tooth pattern for a number of years. A true recovery in home prices is contingent on rising employment and a return of consumer confidence, neither of which are much evident at the moment.

The median price paid for a home in the 9-county Bay Area was $415,000 in January. That was down 6.3% from $442,750 in December, but “up” 27.3% from $326,000 in January a year ago. The median reached a high of $665,000 in June/July 2007 and then fell to a low of $290,000 in March 2009. On a year-over-year basis, the median dropped more than 30% each month from August 2008 through May 2009. At the median’s current rate of increase, it will recover about half of its peak-to-trough loss sometime this spring.

In the mean time, the recent upward trend in inventory should relieve “some” the upward pressure on home prices and start to make it easier for Bay Area home buyers in the coming months.

• Make sure the appraiser knows the neighborhood.  Sellers can request that the lender send a local appraiser; if that still doesn’t happen, owners should supply as much information as possible about the quality of the neighborhood.

• Provide your own comparables. Sellers should provide the appraiser with at least three solid and well-priced comparable properties.  This will save the appraiser some work, and ensure that he or she is getting price information from homes that really are similar to the one being appraised.

• Document home improvement projects. Sellers should provide before and after photos, along with a well-defined spreadsheet of what was spent on each renovation, which should persuade an appraiser to turn in a number that far exceeds what he or she first called out. It’s important to highlight all-important structural improvements to electrical systems, heating and cooling systems – which are harder to see, but can dramatically boost an appraisal.  Showing receipts also may be helpful.

To determine the value of a property, appraisers are supposed to review purchase prices of similar, nearby homes that sold in the past six months. But when a property is much pricier than others in the neighborhood, it can be hard to find similar examples close by. As a result, their asking prices are often out of whack with values that are later determined by appraisals.

“The higher you go up the ladder in value generally the less data you have,” says Danny Wiley, chief appraiser for LSI, an appraisal-management company based in Irvine, Calif.

To find relevant numbers, appraisers in many cases have been digging up older sales as far back as five years ago, consulting current listing prices that might not reflect what buyers are actually paying for a property and even looking at sales prices in other markets.

Further complicating matters, some luxury real-estate values are partly determined by the services and amenities in that neighborhood. City cutbacks in police patrols, fire services, park maintenance and school-district funding can also contribute to lower property values.

For sellers and buyers, the process often results in an appraisal amount that’s below the agreed-upon purchase price of a home. Lenders, in turn, will typically lower the mortgage amount that they’ll give a buyer, leaving the buyer to make up the difference, often with a larger down payment. Another scenario: The buyer refuses to pay more than the appraised amount and renegotiates the purchase price with the seller. And if that fails, buyers can decide to walk away from the deal.

On average, one-third of real-estate agents said the appraisal process resulted in buyers and sellers delaying or canceling contracts or renegotiating to a lower sales price last year, according to a National Association of Realtors’ monthly survey of roughly 3,000 agents. That’s up from less than 10% in 2008.

Experts say this figure could grow going forward as the luxury real-estate market continues to surge. Appraisals can undervalue properties when markets are rising because they look backward at lower valuations. Some appraisers may not adjust for the discrepancy, he says.

It’s not just home purchases that are at risk. Homeowners trying to refinance can also be burned. With private jumbo mortgages, if the appraisal indicates that the borrower’s loan amount is more than 80% of the value of the home, the borrower will likely have to put more money down if he wants to proceed. In other cases, a lower appraisal could keep borrowers from getting the lowest rate possible.

Short Sale/Deed in Lieu of Foreclosure – 2 year waiting period with a Minimum of 20% downpayment (or a Minimum of 10% downpayment with *extenuating circumstances) or 4 years with a Minimum of 10% downpayment

Foreclosure - 4 year waiting period with a Minimum of 20% downpayment (or a Minimum of 10% downpayment with *extenuating circumstances).
*Extenuating Circumstances are defined as nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Examples of extenuating circumstances include Job loss, Divorce, Illness, Death in the family, Severe injury. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree,medical reports or bills, notice of job layoff, job severance papers,etc.)

For FHA Loans, the waiting periods are currently as follows:

Short Sale/Deed in Lieu of Foreclosure – 2 Years with the following exception:
There’s “NO” waiting period If the borrower was current on their mortgage and all other installment debt for the 12 months preceding the short sale, the subject property is not in the same geographical area as the short sale, and the short sale lender accepted the short sale as payment in full.

Foreclosure – 3 Years**
**Also, the Short Sale or Deed in Lieu will be treated as a foreclosure if the borrower was late on the mortgage and other installment debt for the 12 months preceding and at the time of the short sale. In addition, if the borrower pursued the short sale to take advantage of the declining market or purchased at a reduced price a similar or superior property within a reasonable commuting distance.

Depending on which lending institution you ask, you will receive different time-frames allowed to purchase again after a short sale or foreclosure. The reason is that some lenders have credit overlays, which translates into stricter underwriting guidelines than Fannie Mae and FHA have published. It’s also important to understand is that the absolute Minimum FICO (mid) score for obtaining a conventional loan is 580. Most lenders have credit overlays which make it a minimum of 620. Therefore, you need to see where your credit score is at and if it isn’t high enough yet, do everything you can to rebuild it. If you have the money to pay for everyday items, consider paying for more things with your credit card and paying that off every month. Getting a car loan and/or other personal loans and maintaining timely payments will also help bring your FICO score back to where it needs to be.

For a conventional loan, you will also need to save up for a large down payment (20% down, unless your distress sale had extenuating circumstances that you can document) if you want to get back in after 2 years. Otherwise, during the 3rd and 4th years after your distress sale your only option will be an FHA loan with mortgage insurance.
The bottom line is that you may be down, but you’re not out. So review these guidelines and if you are in a financial position to get back in the Bay Area real estate buying market and take advantage of these historically low mortgage rates, I encourage you to do so!