Best Place Real Estate

Although a lot of people are taking advantage of this buyers’ market, otheres are unsure about buying a house as they are concerned that prices may still be declining.  It almost seems as if some people are waiting for prices to go up before they will feel good about buying.  However, when prices do go up, some people who are qualified to buy now will be priced out of the market. 

If we all had a crystal ball we would know exactly when to buy and when to sell.  But we don’t and it is nearly impossible to perfectly time the market, whether it is the stock market, the real estate market, or really, anything.

Rather, you are probably better off buying when we are some where near the bottom.  Imagine real estate prices as being represented by a “V” or a “U”.  It would be really nice to buy at exactly at the bottom of the “V”.  The only thing is that we usually don’t know exactly when we are there.  There is no bell ringer who rings a bell announcing we have hit the very bottom.  But, buying when we are near the bottom of the “U” puts you in a much better position.  Yes, prices may go down a little, but they will more than likely start going up again soon. 

Also take the interest rates into consideration.  Prices may go down a little more, but if interest rates go up, it may be more difficult to qualify for a loan.  Even though the price of the home may be less, the monthly payment for the loan could be higher because of a higher interest rate.  So again, some people who are qualified to buy now, may be priced out of the market by higher interest rates.

Real estate is a long term investment.  Most people stay in a home for at least 5 to 7 years.  Rather than concentrating only on prices and trying to buy at the bottom of the “V”, I believe it is better to consider all parts of the formula for a successful investment.  That formula not only includes price, but also includes loan rates and terms, tax advantages, length of the investment, and resale value.  For rental property, the formula also includes rental income and the increase in the income over the years.       

If you have a question for the City of Lake Forest or need to report a problem, go to GovPopulous.  This system has proven to be very effective because our City Manager not only reads all inputs but also holds his staff accountable for responding to all of them.

Periodically the City conducts a Resident and Business Satisfaction survey.  The last one was done in 2006.  Overall, the rate of satisfaction by residents for City services was 91% and for quality of life was 95%.  For businesses, the overall rate of satisfaction for City services was 86% and 79% of the businesses rated the business climate in Lake Forest as excellent or good.  And the City is constantly working to be even better.  GovPopulous is another way the City keeps in touch with the needs of its residents and businesses.  To use GovPopulous, go to: www.city-lakeforest.com/govpopulous.

Another avenue for home loans is credit unions.  Although the credit union market share of the mortgage industry is still very small, it is growing.  Credit union rates and fees are often more competitive than banks and mortgage brokers, so it is definitely worth considering.

Credit union membership is becoming available to more and more people.  You may be able to join a credit union through your employer or another organization you belong to.  Also check with your family as some credit unions will accept extended family members.

For more information as well as a list of credit unions, refer to www.bankrate.com/brm/news/cu/states/CA.asp and www.ncua.gov.

Everyone has a different situation when it comes to getting a home loan.  You need to do your homework to find the best program for your needs.  Check out your bank and a good mortgage broker, and also, if possible, a credit union.  By looking at all avenues you are sure to find a loan that works best for you.

You are so excited!  You have been approved for your loan.  You found your dream home.  The seller accepted your offer and escrow has been opened.  You can’t wait to move into your new home.  And of course, you must have new family room furniture.  Or, the house is in a great neighborhood but is a little dated and you plan to install all new appliances in the kitchen.  You want to buy what you need now so it can be delivered or installed as soon as escrow closes!

But stop!  Wait until after escrow closes before you make any major purchases!  Many buyers think that once they have loan approval they have passed the test, so to speak.  The lender has approved them for the loan and now they have nothing to worry about. 

But, what they may not be aware of is that the lender is assuming their financial state will remain about the same.  Before giving approval for a loan, the lender checks the potential borrower’s credit report, bank statements, employment, etc. and gives loan  approval based on that evaluation.  Something many buyers do not realize is that most lenders will check the borrower’s credit again, usually a few days before escrow closes.  So if a buyer makes several large purchases and increases his credit card debt, his debt to income ratio may be much higher than the lender is comfortable with.  Even paying cash may not be good as it may reduce cash reserves to a lower level  than the lender wants to see.

Changes in your debt to income ratio might mean that you will now have to pay higher rates, fees, and payments for your loan.  You many loose your financing all together.  Then you are in a situation where you are shopping for a loan at the last minute right before escrow closes.  If you are not able to qualify for a loan and have to back out of the transaction, you may even loose your initial deposit.

This is serious stuff.  My advice to buyers is to wait until after escrow closes before you make any large purchase of any type.  Or, at least check with your lender before doing so.   You could save yourself a lot of money and a lot of heart ache.

Looking at homes before you talk with a lender is like going to the mall with a gift card that you don’t know how much it is worth and which stores will take it.  Is it worth $1000 or $100?  Is it good at Nordstroms or at Sears?  Or at both?  Would you wander around the mall trying to decide what to buy with a gift card of unknown value?  What a waste of time!

But, this is exactly what a huge number of people do when shopping for a home.  Searching for qualification criteria and rates on the Internet is helpful, just as searching for homes on the Internet is a good way to do your homework.  However, before you physically go out and look at homes, you must actually talk with a real live lender.  Everyone’s situation is different and a good lender will find a program that will work best for you.

It is not only a matter of qualifying for a loan.  You also need to know how much the loan will cost and how much your payments will be.  You may qualify for way more than the monthly payment you are comfortable paying.  Also, there may be loan programs available that you are not aware of that will give you more flexibility in your purchase.  Once you know the loan amount you qualify for, how much the monthly payments will be, and the terms of the  loan, you will know what price range of homes to consider.  Like at the mall, you will know how much that gift card is worth.

Even if you are certain you can qualify for a loan, you still must talk with a lender first.  I have had very wealthy buyers run into problems when they attempt to get the loan.  These are people who can actually pay cash for the property and have lots of money left over.  Sure they can qualify, but it may not be for the loan or terms they thought they could get.  By the time they come to terms with the lender, the property they want is no longer available.

In addition,  it is to your advantage to have a pre-approval letter from a lender to submit with an offer to purchase.  A seller will consider your offer more seriously if they know that you already have loan approval. 

Buyers who are looking solely at distressed properties may not be getting the “good deal” they are looking for.  So many people are constantly viewing sites that post homes in foreclosure or that are bank owned thinking that this is where they will find good deals.  Just because a property is a short sale, in foreclosure, or is bank owned does not mean it is a good investment.  Many short sales have their short-comings.  (Sorry, I couldn’t resist!)   

There is so much in the media everyday about foreclosures and short sales.  Banking on this and the human desire to get rich quick, “specialists” are offering subscriptions to websites and classes on “buying short sales and foreclosures”, “how to buy bank owned properties”, “how to find distressed properties”, and so on and so on.  I often wonder if anyone other than those putting on the classes is making much money.  It is kind of like appealing to the American desire to be thin instantly.  I’m sure you’ve seen the ads.  “You don’t have to diet or exercise.  Eat whatever you want.  Just drink this drink or take this pill and you will lose 30 pounds.”  And, I love the before and after pictures.  “Before” shows a guy with a huge beer belly and “after” shows a guy with abs of steel.  And, of course, all this occurred within 2 weeks!

But the truth of the matter is that if you want to be thin, you need to eat a healthy diet and exercise.  And, the truth of the matter in real estate is that you need to look at all factors, not just price.   I am not saying don’t buy a bank owned property or foreclosure.  I’m saying look at the whole picture. 

One very important thing to consider when buying a distressed property is how many in the neighborhood are also distressed sales.  When there are many distressed sales in a neighborhood, those distressed sales now become the comps.  So, if you are looking at a bank owned property that previously sold for $500,000 and you buy it for $400,000, you are now the comp.  It is unlikely you will be able to turn around and sell it tomorrow for $500,000.  What may appear to be a hot deal on the surface may not really be so great when you do the homework.

Again, I’m not saying stay away from distressed sales; just know what you are doing.  In many neighborhoods, especially lower priced entry level homes, just about all the listings are either short sales or bank owned.  If you want to live in a specific neighborhood and plan to stay there for a while, you are buying at a great time.  If your goal is to build wealth and your real estate portfolio, what a great time to do it.  There is no question the market will turn around and when it does you will be happy you bought now.

The approach I suggest to my buyer clients is to first determine how much you can and want to invest in your purchase.  Then look at properties that meet your criteria in that price range.  Keep in mind how long you intend to keep that property and what you plan to do with it (primary residence, rental property, vacation home, retirement home).   Look at location, condition, neighborhood, commute to work, etc. as well as price.  The house you decide on may or may not be a distressed sale, but you can feel confident that it is the right property for your needs. 

The “walk-thru”, also known as the “Verification of Property Condition”, is typically done about 5 to 7 days before escrow closes.  The RPA-CA, California Residential Purchase Agreement and Joint Escrow Instructions, is the contract generally used in purchasing residential property.  According to the RPA-CA, the property is sold “in its present physical condition as of the date of Acceptance”.  In other words, the seller needs to continue to properly care for and maintain the property during the escrow period.  For example, the seller shouldn’t reason that now that he has a buyer, he doesn’t need to water the lawn anymore and let it die while the property is in escrow.

The purpose of the “walk-thru” is two fold.  One is for the buyer to verify that the property is essentially in the same condition as of the date of the acceptance of the offer.  The other is to confirm that the seller has completed any repairs that were agreed upon by the buyer and seller.

The “walk-thru” should not be considered as an opportunity to get out of the contract.  It is not the time for you to go through the house looking for things you don’t like or for things that are wrong.  The buyer has a “contingency period” which is usually 17 calendar days after acceptance.  This is the time for the buyer to do inspections and investigations of the property and to satisfy himself that he indeed wants to purchase this house.  So, for example, if during the “walk-thru” you notice that the cook-top is electric and you really want gas, it is too late to change your mind.  Depending on how the contract is written, if you decide to back out of the deal at this point, you could loose your deposit among other consequences.

Very few transactions are terminated because of a condition noted during the “walk-thru”.  It is usually a very pleasant experience.  The buyers are excited because it is only a few days until escrow will close on their new home.  Sellers will often use the time to show buyers little things on the house such as how to turn on the sprinklers, where to get the mail, what day to put the garbage out, where they have stored extra paint,etc.

The “walk-thru” is actually something to look forward to for both buyers and sellers.

Price is important.  But, please, look at the whole picture!  Look at all the factors involved in a real estate purchase. 

Yes, the price is really important, but so are the mortgage rates.  It is possible for prices to go down further and for rates to go up.  In this case, the house payment on a piece of property could be the same or even higher than when the price was higher.  In his article, The Fed and Mortgge Rates, Bill McCord gives a clear and well written explanation of rates.  Real estate mortgage rates are a big part of the real estate buying picture.

Another thing that is so important to remember is that, for most part, real estate is a long term investment.  Consider the location of the property, floor-plan, amenities, etc.  If you are buying income property, will you be able find tenants easily and how much can you expect to receive in rents?

Even though there are many distressed sales currently on the market, there are some properties that have a lower price for a reason.  Is it simply that the seller needs to unload the property now, or is there something less desirable about this property that is making it harder to sell?  When you attempt to sell it in the future, will it also be harder for you to sell for the same reason?  For example, a home on the view side of the street will usually sell for more than the same home across the street without the view.  Even if the non-view house is asking a really low price, you could very well be better off paying more to be on the view side of the street.  When prices start appreciating again (and they will), your view property will be even more valuable.

Like any other investment, when purchasing real estate you need to look the whole picture.

My sister who lives up in the San Francisco Bay Area called me yesterday.  Her oldest son is a junior in high school and they are coming down to Southern California this week to look at colleges.  We have so many great universities here that it would be difficult to see them all in a week.

But, what a great investment opportunity for us.  Universities are always short on housing.  Even if they have on campus housing, the students usually like to move off campus after a year or so.  With housing prices down and mortgage rates low, an investor has the perfect opportunity.

 We did this when our daughter moved off campus a UC San Diego.  And, what a great investment this has been for us.  She graduated several years ago and we still rent to students.  Many people worry about the kids destroying the place.  Don’t worry.  They are not bad at all and we have never had a payment problem.  This investment has been one of our best, if not the best!

When it comes to buying and selling real estate, California has more disclosures than Heinz has pickles.  But they should not be taken lightly and are there to protect both the buyer and the seller.  Buyers may not take two of them as seriously as they should.  They are the Neighborhood Noise Sources disclosure and the Neighborhood, Area; Personal Factors disclosure.  I think the most important message these two disclosures give is that what bothers one person may not bother another or what one person may consider a nuisance is no big deal to another.

The Neighborhood Noise Sources disclosure advises the buyer that although the property may not be in an “identified airport noise influence area”, there still may be aircraft noise as well as other sources of noise such as traffice, trains, etc.  The Neighborhood, Area; Personal Factors disclosure advises the buyer that there may be other conditions that affect the desireability of the property to the buyer.  The buyer has the right and the responsibility to check into any condition the buyer considers important regarding the neighborhood and the area.

While it is true that some sellers do not disclose a known nuisance or even try to cover it up (big mistake on the part of the seller!), there are some conditions that the seller may not be aware of or that the seller just does not consider a nuisance.  

I have a friend who bought a home in Irvine several years ago.  She bought a house on a corner lot near the entrance of the tract.  Once she moved in, she discovered that her tract is actually a short cut many motorist take to avoid lights at busy intersections.  It is particularly bad during the morning rush hour.  She said there are times that she has a hard time just pulling out of her driveway without getting hit.  Maybe the sellers were aware of this and failed to disclose it.  Maybe they left for work really early or didn’t work at all and were not affected by it. 

After an offer has been accepted by the seller, the buyer has a “contingency period” to do inspections and investigations of the property.  This is typically 17 days.  I suggest that a buyer drive by the property several times during that period and at different times, morning, night, weekdays, weekends.  Walking through the neighborhood is also a good idea.  Take note of the traffic, parking, noise, etc.  Talking with neighbors is also an excellent source of information.

It is so easy to get wrapped up in finding the perfect house, that we forget that the neighborhood is a really important element of that house.  Take the time to check out the neighborhood and area.  You can change and remodel almost anything in the house, but there is very little you can do to change the neighborhood.