For many, it seemed like a great idea to buy that vacation condo 20 years ago. The plan was to vacation there as often as possible, then some day sell your primary residence and retire there for your Golden Years. But lifestyle changes or financial situations might now be causing you to consider selling it instead.

However, I have seen many a client successfully rent a retirement home instead of selling it. Author Christine Karpinski, director of Owner Community for HomeAway.com (HomeAway.com), offers some good reasons to consider renting your second home:

1. Circumstances have changed. Maybe grandchildren have arrived on the scene and you can’t bear the thought of moving hundreds of miles away from them. Or your parents are in poor health and need you nearby.

2. You’ve suddenly realized there’s no place like home and you’ve simply changed your mind. You’ve decided you like being near your friends and you don’t want to leave your church or synagogue. Renting your second home out during the time you are not staying there makes it financially feasible to keep both homes.

3. You’ve decided to “retire” from retirement. These days, it’s not unusual for people to test-drive retirement and find that it’s just not for them. Work can provide many rich rewards—structure, social interaction, mental stimulation, a sense of purpose, and so forth—that people keenly miss when they retire. And, let’s be honest—sometimes people simply can’t afford to retire.

4. Your fixed income hasn’t kept up with your lifestyle. Even when you’re happy to give up the daily grind of your job, losing the paycheck that comes with it can be pretty painful. Factor in inflation, rising taxes, and unexpected “new” expenses, and you may find that what seemed like a manageable cost of living five years ago doesn’t seem that way anymore. Your second home, even if it’s paid for, may start looking like a liability due to property taxes, homeowner’s association dues, and maintenance costs. Not if you rent it out, says Karpinski. Then it becomes a source of new income.

So don’t give up and seek to unload your second home just yet! There are still many ways to make this investment pay off. For more information on renting or buying a second, potential retirement home, please e-mail our team. And please forward this email to any friends and family who could benefit from these insights.

If prices goes down but interest rates rise, it could mean an actual increase in the monthly cost.  Look at the chart.  Prices would need to go come down 10% to make up for one percent increase in mortgage rates.  You could decide to wait on your purchase based solely on price (dumb),  but if you think interest rates are going to rise in the future it probably makes sense to purchase now (smart).

Interest rates are at historic lows.  If we look at interest rates since 2000, we find that the average monthly rate was 6.29%.  That is more than one and one-half percentage points higher than where they stand today.  Though experts are pulling back on their original predictions of 6% rates by the end of the year, there is growing concern that rates will start to rise.  Bankrate.com does a weekly survey of analysts to determine how many think rates will increase in upcoming months.  The graph below shows that the number expecting rates to rise has been trending upward over the last two months.

When considering whether it makes financial sense to purchase a home,  make sure you are considering the cost not just the price.

Your Golden Opportunity

John D. Rockefeller said, “The way to make money is to BUY when blood is in the streets.”   Another noted rich-guy said, Warren Buffet,  believes you should “be fearful when others are greedy and to be greedy only when others are fearful.”  Huge success comes to those who see confusion as an opportunity.  More millionaires were created as a result of the Great Depression than at any time in the nation’s history.  Today, there is a significant opportunity for new millionaires to be made.

With interest rates at historic lows and home values where they are (the Housing Affordability Index is as favorable as it has ever been) I have one question….”Why hasn’t everyone jumped into the market?”  Housing is still one fo the most basic of needs (food, clothing, and SHELTER).

Real estate is the way to building a financial fortune.  Today, rents collected can cover mortgage payments, often creating a positive cash flow.  That is a critical determinant to the strategy; buy something, have the rent make the payment, and wait for the market to improve.  Ten years from now you will be glad you did.  This is no “get rich quick” scheme.  It is a long term commitment.

I believe that to eat up all this inventory we are going to have to entice more people who want to own their own slice of the American Dream into the market.  We need to bring back the entrepreneur to real estate…the investor who wants to “buy and hold” real estate for a long-term investment.  Investors uy multiple units/homes and find long term results that outpace the stock market.

WHAT IS HOLDING PEOPLE BACK?

1.) Fear of further declination of home values(better known as greed).  The “Why buy now if prices are going lower?” mentality will hurt today’s buyer the same way as the “Why sell now when prices continue to climb?”  mentality hurt sellers 5 years ago.  By the way, who cares if prices delcine in the short run, you have a positive cash flow, remember?  And, you’re not selling this home for 10 years.  It’s like losing your first bet in the casino.  It doesn’t matter until you leave the building before you determine if it was a good day.

2.) Limited Financing Options.  For competitive rates, most lenders require 25-35% as a down payment (while there are limited programs with 20% down at higher rates).  When mortgage programs constricted, investor loan products were among the first to go because people are more likely “not to pay” the mortgage on the house they don’t live in.  But with conservative loan- to- values and A+ borrowers being the only people being approved for these loans, there is a reason to believe that the tightening may be loosened a bit.

3.) Being A Landlord.  Many people don’t want to be bothered collecting rents or getting the phoe calls in the middle of the night that the air conditioner doesn’t work.  I see this as an opportunity for more real estate agents to become Property Managers, where they can take on these headaches for the invesors (for a fee).  Agents are best positioned to identify property, find a tenant, and manage rent collection and home improvement/maintenance issues.

There are real estate speculators (who buy low, fix up, and hope to sell high), but that is a full time job that should be left in the nads of the experienced professional.  

Let’s look at an example of a long term investor who is bullish on the long term value of real estate in America.

Buy a home for $200,000, expend $50,000 for a down payment and clsoing costs, and have your monthly carrying costs covered by rent.  If you sell the property in 15 years for $400,000, you did not double your money, you had a 400% return on your money (because you only used $50,000 cash to get your $200,000 profit).  The fact that you canleverage real estate is how fortunes are made.  If you could cover your expenses through rent payments received, and leverage your cash invested at a 3:1 ration, WHY WOULDN’T YOU EXPLORE THIS STRATEGY TO BUILD YOUR FUTURE NEST EGG FOR RETIREMENT???

You have probably heard a lot about Shadow Inventory lately; it’s another one of those phrases that makes its way into our language when an unusual situation arises demanding an explanation.  If you live in South Florida you probably never heard the phrase “cone of error” until a few years ago.  (BTW, it means the area where a hurricane is most likely to hit or miss!)

So, what is Shadow Inventory exactly:

It consists of homes that are not yet on the market but fall into one of these categories:

* Houses that have not come to market because the homeowners didn’t put their homes up for sale in the last few years hoping that by waiting they will get a higher price.

* Homes that have already been reposed by the banks but not yet on the market (REO).

* Homes that are already in the foreclosure proces but have not yet reposed by the banks.

* Homes that are 90+days behind on their mortgage payments (less than one percent will ever catch up, 99% will become a short sale.)

Zillow  released a survey on the category of “pent up selling demand”.  The question asked was, “If you saw signs of a real estate market turnaround in the next 12 months, how likely would you be to put your home up for sale?”   5.3 million homeowners said they would be “very likely” to put their home up for sale, 6.1 million would be very likely and 10.6 million would be “somewhat likely”. 

In comparison, 5.2 million existing homes were sold during 2009. 

Many organizations have tried to quantify the other category (delinquencies, homes in the foreclosure process and bank owned properties and these are their findings:

The Mortgage Bankers’ Association believes that there are 4.3 million homes in this category.

Barclay’s Capital puts the number at 4.7 million. 

Capital Economics says 5.5 millon

Morgan Stanley’s recent study claims 8 million.

If we take the lowest number in each category (5.3 homeowners being very likely to put their homes up for sale and 4.3 million in default)  there would be an additional 9.4 million homes entering the market.  If 5.2 million were sold in 2009,  and the same number is expected in 2010,  it isn’t hard to see that there will be an excess of homes on the market.  With Inventory at a high and demand at the same pace as last year it can only mean one thing….downward pricing. 

Statistics show it will take another 13 years for prices to climb back to where they were at the height of the market in South Florida.  For homeowners who plan to sell their home in the next few years,  it is time to take a look at these statistics and consider your options.  If you are lucky enough to have a home that you can enjoy and afford for the next 13 years then your patience will pay off.  For others, and that means most of us, 13 years is a long time to wait.

  “The unique thing about this program is that borrowers can purchase one of these homes with only 3% down.  In addition to the small amount down there will be no Private Mortgage Insurance.”  stated Todd Wheeler of Homeservices Lending, an affiliate of Wells Fargo and HomePath Lender.

Other Benefits Include:

Flexible mortgage terms (fixed-rate, adjustable rate, or interest-only) 

Lower credit scores required (Minimum Score 660) 

 Investors are required to make a 10% down payment with 5% of the down payment coming from the investors own funds.  Normal credit scores apply.  Investors can purchase up to 4 Fannie Mae owned properties through HomePath financing.  

The 3% down payment for owner occupied properties can be a gift or grant, a loan from a nonprofit organization, state or local government of employer.

The Seller can contribute up to 6% toward the buyers closing costs and pre-paids

No appraisal 

No Condo Questionnaire required 

The HomePath Mortgage Program applies as long as the property is designated by FNMA on the HomePath website.

There are five major factors that are significantly affecting the real estate market. 

The first is UNEMPLOYMENT.  There are 12.5 million people on unemployment according the Bureau of Labor Statistics.  There are 8 – 10 million who have fallen off the charts or are underemployed.  Seventy percent  of the economy is consumer driven and 20% of the GDP is related to real estate.  People who want to buy homes can’t unless they are employed with a savings account.

The second is CONSUMER CONFIDENCE.  It is currently bouncing somewhere near the bottom.  On a national level, home ownership never lost value from the time of the Great Depression until the time of the Great Recession.  We are struggling to prove that the owning a home is still the American Dream.

The third is INVENTORY OF HOMES.  There are 3.5 million homes listed for sale.  In the 10 years trailing the average was 2.5 million homes; there are 30% more homes for sale today.  There has to be an absorption of homes currently for sale before new construction can begin.

The fourth is SHADOW INVENTORY.  In 2008 there were 1.8 million foreclosures.  In 2009 there were 2.1 million foreclosures and in 2010 it is predicted that we will see somewhere close to 2.9 million homes in foreclosure.  25% of all mortgages are underwater and out of 55 million mortgages, 8 million are 90 days or more in arrears.

The fifth is GOVERNMENT STIMULUS AND SUPPORT.  We saw a “false” high which was provided by the tax credit and low interest rates.  Without continued support many people believe that we we see a sharp decline in home sales beginning in May, 2010.

I believe that we are at the beginning of the end of the real estate slump and the climb is going to be slow.  The long term road to recovery is going to be considered the “new normal” according to real estate experts.

It has been recently reported that a new “scam” is taking place in Broward County involving unoccupied homes that are REO’s (bank owned) or Short Sales.  A group of people have found a loophole in the system and they are taking  ADVERSE POSSESSION , (see Adverse Possession without color of title (Fla. Stat. section 95.18).

 Upon taking possession of the home they rent the homes to other individuals and they file a QCD (Quit Claim Deed). There is nothing the police or the Clerk of Courts can do to prevent it.  In a quick search of records,  over 150 filings have taken place since late last year.

Realtors who list these properties are forced to evict the tenants, who through no knowledge of their own have rented the property. In some cases the Realtors have  to pay off the people who filed the QCD  or take them to court to prove that they do not have title in order to sell the house. 

This is a list of  of companies that have been known to participate in this activity:

1. SAVING FLORIDA HOMES
2. COLONIAL PROPERTIES
3. HELPING HANDS PROPERTIES.
4. MAS & SONS Inc.