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2009 (2)
2008 (9)
2007 (6)
Tuesday, April 07, 2009

Understanding an REO

With today’s considerably lower Miami Beach real estate prices, the large inventory of foreclosures and bank owned property the question becomes more of what kind of property is worth investing in than anything else.  For purposes of this article, we’ll focus on bank owned properties, also known as REO (real estate owned) property.

A home becomes real estate owned if it doesn’t find a buyer during a property auction.  Since banks aren’t necessarily designed to function as Miami Beach real estate property-owners, they’re usually very eager to get rid of them which can result in considerable discounts.  However since an REO is not the same thing as a foreclosure, lenders can still earn a profit from them so don’t expect as deep of a discount.

A perk of buying a Miami Beach real estate REO is that there’s much less of a risk of dealing with liens, taxes and other unforeseen costs that come with a foreclosure since lenders will take usually deal with them before the sale is closed.  However an REO can still be in bad condition like a foreclosure so it remains important to get a home inspection or check the home out yourself, lenders are not at all obligated to make any repairs on the property but they will allow you to back out if something is seriously wrong.

Posted at 10:24:21 AM

Thursday, March 05, 2009

Examining the Interior of a Home

If you’ve been browsing through Miami Beach real estate on the internet, you’ve more than likely come across numerous resources thoroughly explaining how important it is that you carefully consider where the home is located, the values of neighboring homes, etc.  If you’ve done your homework, perhaps it’s time to narrow down your assessment to the home you may soon be living in by giving the interior a meticulous examination.

Perhaps you’d like to start off with the electrical wiring.  Depending on your familiarity, you may wish to leave this to a professional or have it done as part of the home inspection report, should you request one.  Always check this part out regardless of whether the home was built ten years ago or five years ago.

The plumbing is a little easier.  Leakage can often be discovered just by taking a look behind sinks since that’s the spot where mold has the best conditions for accumulating.  A leaky sink could be an indicator of bad pipes and thus plumbing, something you likely want to bring to the appropriate person’s attention before signing off on the dotted line on your Miami Beach real estate purchase.

Not all homes come with an addict but if there is one, you may wish to make it your first stop.  If you want to examine the roof, the attic is the best spot to do so.  If there’s wood that shows wear and tear, this could lead to leakage later on.

Posted at 11:00:29 AM

Wednesday, November 26, 2008

Compiling Comparable Sales

With the advances in technology and the widespread availability of the World Wide Web, there is more real estate information available than ever.  Realtors have a number of resources available to help them with their seller and buyer assistance efforts and among these, it’s important to have a good idea of average sales prices in any given neighborhood, officially known as comparable sales and often referred to simply as comps.

Depending on the state where the realtor is doing business, obtaining information on comps can be done by simply heading over to the local courthouse and browsing through public records or reading newspaper listings to get a glimpse of recent sales figures.  However this method means that such services need to actually be provided in order to make use of them.

The most readily available resource is the internet since there are many websites available which can be used for finding comparable sales information while removing the need to do a lot of unnecessary and possibly fruitless legwork.  Keep in mind though that there is no guarantee as to how current this information may be.  A similar approach is to subscribe to service companies which can mail or offer this information via other means besides the internet.  Even so, the same problems of encountering outdated information are still there.

The MLS can be extremely useful and if the person using it is already a licensed realtor then they have access to a wealth of information on multiple listings which is more often than not kept up to date.

At the end of the day however, perhaps the best way to have the sharpest knowledge on comps is to take the self research approach and focus on a certain neighborhood and staying abreast of sales.

Posted at 4:43:12 PM

Friday, October 31, 2008

Existing Home Sales Rose Nationally Last Month

While the economy seems bleak with the stock market fluctuating daily and a steady amount of major companies going bankrupt or merging, the real estate market seems to be headed down a different path. Month-after-month the real estate market has slight improvements. Experts think the worst declines in the real estate market have already past while the economy still has a while before it stabilizes.

Recent reports from the National Association of Realtors (NAR) show an increase in existing home sales. Home sales were up 5.5 percent with a total of 5.18 million units sold across the country in the month of September which was higher than the previous month by 1.4 percent. Lead economist for the NAR Lawrence Yun suggests this is part of “a sales turnaround which began in California several months ago…” and “is broadening now to Colarado, Kansas, Minnesota, Missouri and Rhode Island”. 

The cause of this influx of real estate business, according to NAR President Richard F. Gaylord is “low home prices and low interest rates”. The nearly thirty percent discounts in home prices in major cities and rural areas have attracted buyers back to the real estate market in certain areas of the country. Richard F. Gaylord is optimistic about recent gains and thinks the real estate market is on its way to recovery.

Lawrence Yun, while also optimistic about the recovery of the real estate market, warns of “market disruptions” on the road to real estate market recovery. The credit markets have a significant impact on the real estate market and as they experience tough times it may have averse effects on the real estate market. But that aside, the NAR is predicting that the worst for the real estate market is over and that it will recover sooner than the economy itself.

Posted at 10:53:28 AM

Friday, September 05, 2008

Environmental Awareness

Global warming, damaging fuel emissions, they’re all more of a concern on people’s minds these days as they become more and more aware of their long term effects on the environment and how important it is to try and incorporate “green practices” into your daily lifestyle whether that means doubling up your recycling efforts or reducing the amount of time you spend sitting idly in traffic.

In real estate, many developers have taken into account how they too can make homes “greener” and many have made use of natural resources to create environmentally friendly condo buildings like Ten Museum Park which uses its glass design to allow tons of natural sunlight to come into the building, thus reducing the need to flip on artificial lights, at least during the day.

The Ten Museum Park condo is only a small part of a bigger picture.  Its home, downtown Miami is recognized not only by its sweeping business and condo skyscrapers, but also the numerous and elaborate light displays that bring the city to new life during the evening.  Obviously all this visual eye candy, while certainly nice to look at does not do the environment any favors.  Thus, to reinforce the message of how important it is to turn off nonessential lights whenever possible, Ten Museum Park and all those other high rises in downtown Miami’s will turn off their own unimportant lights on March 29 in a global effort to encourage environmental awareness.

Regardless of whether you live in a Miami single family home or a luxury condo, the efforts required by you to help out the environment even a little are that simple: turn off lights when you leave a room, drop a plastic water bottle or soda can into a recycling receptacle instead of the trash.  It may seem useless but it’s always good to know you’re doing your part in making the world you share with everyone else that much more pleasant.
hat require little to no repairs.  Don’t get caught up in the fierce competition without having a limit of how far you’re willing to bid, always remember the winning bid is only a component of the other fees that follow.  As you learn the ropes, you’ll eventually get a feel for how real estate auctions work and who knows, if you become good at it, they may become your preferred method of buying Florida real estate.

Posted at 2:50:44 PM

Tuesday, June 24, 2008

International Florida Real Estate Assistance

To some degree the foreclosure situation has transitioned from how to prevent foreclosures to how to get rid of the hundreds of foreclosure properties already available on the market.  South Florida homes are among the highest in foreclosure filings, contributing to an already overcrowded housing glut.  The answer to appeasing the situation may lie beyond the U.S. borders.

Strategic Real Estate Advisors is an asset management firm situated in London that plans to raise $1 billion dollars in order to purchase luxury property like Miami Beach oceanfront condos currently owned and being sold by the banks through the Florida Prime Residential Opportunity Fund.

It’s interesting to note that not only is Strategic Real Estate Advisors located outside of the United States, the majority of the funds which will go towards the purchase of all these luxury properties will be coming from well to do investors and funds located throughout Europe and the Middle East.  Recent reports have consistently pointed towards international investors and buyers as integral towards maintaining interest in Florida property investments and sales.

Critics may see Strategic Real Estate Advisors’ initiative as ineffective since they won’t be making a profit.  The firm actually plans to buy and then hold onto these properties for next six years or so, a move that may cost considerable funds as the market fluctuates but which should bring considerable profit by the time it decides to sell them off as a residential property investment or something else entirely.

Within a seven year timeframe home values and the real estate market in general will certainly be in much better shape and buying activity will likely have increased so in a sense Strategic Real Estate Advisors are providing a worthwhile short and long term solution.  Is this just another flash in the pan or is it a viable strategy?

Posted at 12:30:39 PM

Wednesday, May 28, 2008

Homes Are Selling Again

Amidst the doom and gloom of housing market reports comes a recent report suggesting the real estate market is showing strong signs of life. In these tumultuous times it's easy for people to think that the economy is headed for recession or even a crash. Despite current market reports that suggest we are beginning to see slow signs of recovery there are still those who would rather build a bunker under their homes to prepare for an apocalypse then invest in real estate.

The last half dozen months have not seen much progress in the way of homes sold. The highest percentage of drop in home sales occurred during that period leading many to believe that the market would eventually begin to recover—and it did. In April homes sales increased slightly, which wasn't enough to ease all tensions in the housing market but enough to show that the market is on the right track to recovery. 

Property value also rose slightly across the nation showing encouraging signs of the real estate market's enduring strength. Though the median home value is comparably low to just four years ago the fact that property value is stabilizing across the country is a sign that things will return to normalcy sooner than later. When property values experience steady rise it will be more practical for people to sell homes and to convince investors to buy homes. 

So, how should one react to recent reports of trends reversing in real estate? Real estate transactions rising are a sign that demand for property is still alive. Prices are almost at a low enough level that many people sitting on the fence on whether or not to invest will soon become active. As sales increase, so will home values and soon real estate investments will become stable enough to return to business as usual.

Posted at 10:09:56 AM

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Updated: Thursday, February 22, 2018

How Much Home Can You Really Afford?

So, youre getting ready to buy your first home, and you feel like youre at the mercy of the market. And your mortgage lender. In some ways, it might even feel like theyre working against each other - especially if youre in a really hot market in which you cant qualify for the amount youd need to buy what you want.

When it comes to providing pre-approvals for would-be homebuyers, lenders today are more careful than they were in the years leading up to the market crash, and that means your financial picture will be more rigorously scrutinized to determine your credit-worthiness and develop your max approval amount. Trust us, thats a good thing. The last thing you want is to be house poor. Having a great place to live that you cant enjoy or furnish or even leave because you have no money left wont be fun.

"Just because a lender says younbsp;cannbsp;afford a certain mortgage doesnt mean younbsp;should," said TIME: Money. "Consider your take-home pay - what actually goes into the bank after taxes, health insurance, and savings for retirement and college. Then add up all your monthly bills, not just debt but also things like utilities, phone, and groceries. You want to feel comfortable that you can cover all your household obligations while still meeting your other financial goalsnbsp;andnbsp;keeping six months of expenses in annbsp;emergency fund."

Thats why its so important to consider all of your monthly expenses >

Increased commuter costs

Are you moving out to the lsquo;burbs? That hour-long commute each way is going to add to your bottom line. Of course youll be using more gas. Will you also incur tolls? Then there is the wear and tear on your car, which could mean additional costs. You can estimate your commuter costs here.

Higher utility bills

A larger place could mean higher utility bills. Then again, more energy-efficient appliances, windows and doors, and HVAC could potentially result in lower bills, which could be a reason to look for a newer home over something older. Its not out of line to inquire about utility bill costs from the existing owner through your Realtor is probably best. This information could be critical in helping to make the best decision when buying a new home.

Homeowners association

Your pre-approval amount is an all-in number, but that number only includes principal, interest, taxes, and insurance. If you are buying in a community that has a Homeowners Association, your fee will be a separate cost that needs to be considered. An HOA fee can range greatly depending on your location, the number of homes in the community, and the amenities and services included.

Home improvements

Youre likely going to have a mailbox full of credit card pre-approvals and offers from places like Home Depot and Lowes after you close escrow - and they can be tempting. Reeeaaallly tempting, especially if you need new appliances or countertops or flooring or all of the above. Ditto for furniture stores, because, like Lowes and Home Depot, those offers are often zero-interest deals. It may make sense to take advantage of one or more of them to make some necessary or wanted updates to your home - if you can swing the payments. They obviously add to your monthly obligations, even at no interest. And keep in mind that if you miss, or are late on, a payment, that zero interest is replaced with a much larger number, and that means youll face a much larger balance to pay.


If youre coming from an apartment or a rental where the outside maintenance is taken care of by someone else, get ready to either: buy a lawnmower and an edger and spend your Saturday mornings in the yard, or pay someone else to take care of it.


If youre buying a brand-new home, youll typically have a warranty provided by the builder or developer, often for one year. You have the option of extending that, or buying/extending an existing warranty on an older home, and all of those options will cost you.

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Backyard DIY Projects

You dont have to pay through the nose to have the best backyard on the block. If you have a few simple DIY skills and know how to use a tape measure and level, you can easily upgrade and update your backyard all on your own.

If youve ever dreamed of a lovely garden path, perennial garden or a privacy fence, but youve hesitated because of cost, now is the time to invest a little sweat equity to create the backyard of your dreams.

Plant a Perennial Garden

Tending perennials may seem daunting to inexperienced gardeners, but in reality, theyre some of the easiest flowers to grow. Best of all, plant them once and they return to bloom every year. Perennial gardens make lively backgrounds for your annual plantings. Use them along fences and border porches and decks to add color from early summer to late fall.

To ensure the stability and livelihood of your perennial plants:

  • Keep the roots wet until you put them in the ground
  • Plant them in improved soil
  • Apply regular helpings of water and fertilizer
  • Place a 3-inch layer of mulch around, but not touching, the plants.

Install a Privacy Fence

Photo by tristanf via Flickr

If you crave a secluded backyard oasis, consider installing a 6-foot or 8-foot section of privacy fence. Your local home improvement store sells this type of fencing in sections. All you have to do is level the terrain and dig the post holes. Use a quick-setting cement to anchor your fence posts, making sure everything is level and square before moving on to the next section.

With a little tenacity, you can install a privacy fence in one weekend. Done properly, it adds privacy and enjoyment to your backyard and value to your home.

Replace Your Pool Liner

Photo by Creative Ignition via Flickr

It sounds like a difficult challenge, but replacing your pool liner is quite simple when you start with the right tools and quality supplies. Visit webpages such as inground liner to find the materials you, as a DIYer, need to perform simple maintenance on your in-ground pool. Keep the following points in mind as you replace your pools liner:

  • Replace your liner during warm weather
  • Remove all water and debris from your pool
  • Avoid over-stretching your replacement liner
  • Utilize sandbags to secure the base seal
  • Have a comprehensive understanding of the process before starting.

Hardscape Your Backyard

Photo by ARNOLD Masonry and Concrete via Flickr

The addition of pavers, retaining walls, fire pits and patios all add value and comfort to your backyard, but many homeowners dont realize they can easily complete these upgrades without the help of professional landscapers.

Lay decorative pavers on a bed of tamped sand to make an easy patio that stands up to the elements, or layer simple bricks with or without mortar to make attractive and functional retaining walls. A meandering garden path guided by decorative cobblestones can lead to a simple water feature or wooden bench in your garden. Delight your backyard guests and yourself this summer by creating a simple hardscape that complements the design of your home.

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Considering the Argument for Adding Individual Mortgages to Your Investment Portfolio

Investing in mortgages should not be looked at with trepidation. As with other cash flow investments such as corporate bonds, government notes, or money market funds, mortgage investments can be looked at in the same vein. Mortgage investments have an attractive risk-return ratio in comparison to other income-producing investments. If you choose your investment intelligently, individual short-term mortgages which I define as first deeds of trust on real estate with 65 loan-to-value LTV ratios, maturing in two years or less are considered more risky than money market accounts or US Treasury bills, but they offer yields at the level of high yield corporate bonds, or even higher with potentially lesser risk.

Chart 1 shows the general risk of short-term mortgages as compared to other income producing investments.

Risk in terms of loss of principal taking into consideration opportunity costs if interest rates rise. Generally, individual mortgages do not trade in the open market; thus, the principal is not subject to market fluctuations as compared to Govt T-Notes, Govt Notes, and Corporate Bonds. In addition, mortgages that have a 65 LTV enjoy some protection if the underlying property declines in value. Govt Notes and Bonds have no collateral backing but are Govt backed and Corporate bonds usually have no specific collateral and are based upon the full faith and credit of the issuer.

Chart 2 shows the general return of mortgage investments on a current rate of return as compared to other income producing investments.

Chart 3 is a grid that shows the comparative advantage of mortgage investments over alternative income producing investments when considering opportunity risk/reward ratios by combing Charts 1 amp; 2.

For purposes of this article, we have defined the following:

Govt T-Bills -- 1 yr obligations guaranteed by the US Government
Govt T-Notes -- 5-10 yr obligations guaranteed by the US Government
Govt T-Bonds -- 15-30 yr obligations guaranteed by the US Government
CDs -- 1 yr FDIC insured
Money Mkt Funds -- liquid mutual funds maintaining a 1 share price
Corporate Bonds -- 15-30 yr obligations guaranteed by a US corporation rated BBB or better
Mortgage Investments -- 1st deeds of trust on real estate with 65 loan to value maturing in two years.

Risks involved in mortgages vary from the other investments that financial advisors might be more familiar with and more due diligence is required. First of all, unlike CDs or US government obligations, mortgage investments are not FDIC-insured and have no government guarantee. Do not confuse these types of mortgage investments with past GNMAs, the pooled investments created by the quasi-governmental mortgage company Ginnie Mae and sold to the public. GNMAs are mortgage-type investments and have a quasi-government backing. By contrast, the mortgages used in the above examples are individual mortgages; thus, the principal is fixed and does not fluctuate unlike GNMAs, which return a portion of principal with each interest payment and trade in the open market and are thus subjected to market volatility. The mortgage investments backing is primarily going to be the underlying real estate on which the mortgage is recorded specific versus blind pool and almost all short-term mortgages will pay interest only, thus keeping the principal intact.

However, all income-producing investments carry some risk -- and its often misunderstood, even by sophisticated financial advisors. For example, money market funds generally are only backed by the mutual funds integrity to honor the 1 share price because all they are holding are short-term obligations, both government and corporate. However, in the early 1990s, when many corporate bonds went sour, investors suddenly learned that their 1 share price was not guaranteed; they could actually lose principal. The mutual fund families that sponsored the money market funds paid out of pocket to subsidize the share prices, thereby preserving the sacred cow.

Corporate bonds carry the risk of strength and integrity of the corporation that issued the bonds. Independent rating services such as Standard and Poors and Moodys have been shown to misjudge the security of many corporate bonds -- whether through conflicts-of-interest or simple mistakes. Even without misjudgments, the price of a corporate bond fluctuates based on the performance of the company, its industry, and the economy overall. In addition, as interest rates rise, the value of the bonds decrease.

The risks that a mortgage investor faces primarily involve the borrower and the underlying real estate. An investor may choose to work with a borrower with less than perfect credit if there is sufficient equity in the property that it is worth the risk. Alternatively, a property may be marginal, but the borrower has excellent credit. These are the main factors determining the interest rate that an investor can expect on his mortgage investment.

Another factor in determining the rate on a mortgage is the competition for these types of investments. In the past, they were considered one of the best kept secrets in investing. No longer. The competition for mortgage investments has heightened to where lenders are competing for loans. This, in turn, drives down the rates. Good for the borrowers; not so for the investors. On the positive side, what once was considered an illiquid investment has risen to a semi-liquid investment. Although there is not a trading market for mortgages as there is for stocks and bonds, new companies have come to the marketplace in search of purchasing existing loans; thus, a market has opened up providing liquidity to those holders of mortgages who want to sell their loans. Giving up yield for liquidity has been attractive to some investors. The yield may be upwards of 1 lower for this ability to sell, but many have decided it is worth it. An Internet search of purchasers of mortgage investments provides many companies willing to buy them.

With the Great Recession now more than five years in the rear view mirror, many financial institutions have loosened some of their lending restrictions. This has also caused interest rates to remain competitive for borrowers. However, because of strict regulations with Dodd Frank and the ATR [Ability To Repay] requirements imposed upon both conventional and private lenders, many borrowers are facing difficulties obtaining the financing necessary to purchase owner occupied real estate used for their primary residence. Otherwise, >

One of the major problems holders of long-term debt instruments be they government or corporate bonds encounter is not so much the risk of failure, but the opportunity cost during rising interest rates. As interest rates rise as we are slowly starting to see now, the investor is caught holding investments that are losing principal, albeit temporarily. Sure, these investors can hold on to lower-return investments until maturity, but the price they pay in the lack of opportunity to participate in higher yielding instruments usually outweighs the wait. Of course, in times of declining interest rates, one would be better served to be in the longest-term bond possible and to sell just as interest rates begin to rise. The question then becomes one of using a crystal ball in which way interest rates are headed.

One solution for the risk-averse investor is to look to short-term mortgage investments no more than 5-year maturities for >

Where do investors and their advisors find these short-term real estate mortgages? There are lenders called "private money real estate lenders" who provide private financing to borrowers who may not be able to obtain conventional loans for a variety of reasons. Advisors should primarily deal with lenders who have a good reputation and record the deed of trust. In some cases, investors may want to invest in a specific mortgage because they know exactly which property is securing their investment; however, the down side to this strategy is that there is now a lot of competition for these types of loan investments and one may be sitting on the sidelines waiting for an opportunity to invest. If the investors money sits too long [in a low interest, liquid account waiting to deploy funds for a new loan], the blended rate of return after the loan is found and invested in may be lower than if the investor invested in a Fund that holds mortgages. For example, if an investor allows his/her money to rest in a money market fund paying 1 and it takes six months to find an 8 note, after one year, the average rate of return for that year was only 4.5 as compared to a Fund that may pay 7. Something else to consider is that a Fund may allow for a reinvestment of monthly distributions thereby compounding the yield. With an individual mortgage, the lender has to take the monthly payments with no reinvestment allowed. In addition, a Fund allows for diversification because the Fund has many mortgages, similar to a mutual fund holding a variety of stocks. Because this type of investment is no longer a secret, many individual investors are competing for mortgages. When a broker presents a potential scenario to an investor, that broker usually also sends the same scenario to many other potential investors, as the broker wants to make sure that he can fund the loan in a timely fashion to the borrower. Many an investor has gotten upset when, after giving the broker the green light for the loan, the broker informs the investor that he was too late and some other investor snapped up the loan. This creates a frustrating situation for the investor and wastes his time. At some point, the investor may tell the broker to stop sending him deals, as he never knows if he will be allowed to invest in the specific loan [because another investor was faster in saying, "yes"].

Many investors choose to invest in a Fund to avoid those disappointments. In addition, many Funds provide a liquidity feature, so the investor can withdraw his money if he needs to. Advisors should look for Funds that charge no load to get in or out and make sure the manager of the Funds interests are aligned. One way is for the Fund to participate in the points being charged to the borrower. This lends itself to make sure the manager does not charge a large amount of points [which the manager could retain] and a small interest rate [which is paid to the Fund].

Although short-term mortgages and mortgage Funds are not the "end all" investment, they may play a prominent place in many investment portfolios looking to provide high yields for >

Edward Brown is in the Investor >415-883-2150

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