It’s not just you that has to qualify for a mortgage. Your home does too. Check out the video to learn more about why your new home faces a rigorous qualification just as you do.
Is the Multi-Family Market Heading Towards a Bubble?
When it comes to the hottest type of real estate multifamily investment, investors started to question 
if we are in the bubble.
It is not possible to predict the future with 100% certainty, but the facts support the statement that the multifamily segment of real estate market is outperforming all other types of investments.
We’ve got more than enough demand. Between the Millenniums and the Baby Boomers there is definite increased interest in renting apartments.
Have we thought that too many apartments are being built in Broward County? Since 2006 we did not see any new multifamily construction, therefore the answer to such a question is a strong resounding NO.
We’ve got a long way to catch up with the market demand.
Many of my investors are expressing concern related to a valuation of this type of asset defined by a CAP Rate. In actuality CAP Rate will continue to go down in the coming years. There are multiple reasons for this prediction which we will not be touching on in this publication due to the complexity of the issues.
There is no shortage of interest and/or capital available for this sector of real estate.
The main challenge is to find the willing Sellers in South Florida. It is becoming harder and harder to come by multifamily deals.
What are the main driving factors for such a condition?
1. Foreign investors are looking to bring a capital into the most economically stable country in the world. They can afford to pay a price that would yield an extremely low return because they get the benefit of currency appreciation. 3% CAP Rate for them is not actually a 3% return.
2. Florida is the State with no Income Taxes.
3. South Florida has shortage of land available for development which increases the value of existing properties.
4. And one more Very Important Factor, we have wonderful weather most of the year.
The challenge is to find Sellers that would sell multifamily property at the market value. When someone considers selling, he or she is asking what to do with the money and where it can be reinvested. This information is not to discourage anyone from looking for reasonable (hopefully) Sellers, but provide a brief overview of the particular sector of the market.
As a buyer in South Florida, it is probably a good idea to invest even if the initial return seems too low. Almost all lenders love the product and provide financing with a low interest rate. If buyers exercise their leverage they should be focusing on the Internal Rate of Return versus CAP Rate. Multifamily is considered to be an exceptional investment in today’s market.
I am always available to answer your questions.
The By Owner and the Pizza Man
I wish I could take credit for this great post, but it was from a colleague of mine. It’s too good not to share, however.
“A past client of mine – who owns a pizza shop – calls me and proceeds to tell me how he is going to buy a property (FSBO) so they can “cut out the brokers fees.” He goes on to tell me how proud he is that he read “THE BOOK” (what book I don’t know) and is following it to investor success.
In the next breath he asks me to run comps, closing costs, give him contacts for mtg reps and title cos and give him advice on what the next steps are to completing the transaction as well as negotiation tips.
I took a deeeeep breath…told him to hold on I was on my way to his shop and that I would be right there to have this convo in person.
I arrived but before I would let him speak I handed him two frozen pizzas I bought at the supermarket – I asked him to place them in his oven so they could cook, cut them and serve them to me at his table before we could talk business. He was appalled – how dare I ask him to do such a thing, don’t I know that HE makes pizzas and that is how he pays his bills? I just looked at him and smiled … I could see the light bulb turn on.”
Mattress Money
Mattress Money and other funds used to purchase a home
With vigilant focus on the source of funds for closing mortgage loans, its important to know what’s acceptable. Here’s what you need to know and what you will need to provide:
Mattress Money
Or any “cash on hand” is not acceptable. All funds must be “seasoned,” which means your money needs to be in an institutional bank account (bank, credit union, brokerage, etc.) You will need to provide all pages of up to three months of bank statements for proof that these funds are yours.
Gift Funds
Are okay with a signed “gift letter” (a form your lender should provide) and evidence of the donor’s ability (a statement showing sufficient funds.) Later, your lender will need copies of the check, deposit slip, and account statement to show the transfer into your account.
Assets Being Sold
Such as a car, boat, collectible, or anything of value you are selling, require proof of ownership (such as registration or title) and evidence of value (blue book value or appraisal.) After the sale, provide copies of the receipt and the check and deposit slip showing the transfer of funds into your account.
Other Examples
Include loans from employers or against retirement savings, grants, inheritances, proceeds of sale from other property, loan paybacks and winnings. Be prepared to show the source of funds, evidence of transfer into your account, and any supporting documentation of value, terms, service provided, etc.
TIP
If you have time and want to minimize paperwork, consolidate all funds into one account at least two or three months before you anticipate closing on your new house. Save any and all evidence of the transfer and deposits, and keep activity to a minimum.
Top Ten Tips for 1031 Exchanges
The 1031 Exchange is slowly making its way into daily conversation by Realtors, title companies, and investors. Please keep in mind that Section 1031 isn’t restricted to Real Estate but this is where most of the discussion takes place.
Although most sales are taxable as sales, if you use 1031, you’ll either have no tax or limited tax due at the time of the exchange.
In effect, you can change the form of your investment without cashing out or recognizing a capital gain. There’s no limit on how many times or how frequently you can do a 1031 exchange. Although you may have a profit on each swap, you can avoid tax until you actually sell for cash many years later.
In general, if you swap one building for another building, you can avoid depreciation recapture. But if you exchange improved land with a building for unimproved land without a building, the depreciation you’ve previously claimed on the building will be recaptured as ordinary income.
Such complications are why you need professional help when you’re doing a 1031 exchange. If you’re considering a 1031 exchange, or just curious, here are 10 things you should know.
1. A 1031 isn’t for personal use.
The provision is only for investment and business property, so you can’t swap your primary residence for another home. There are ways you can use a 1031 for swapping vacation homes.
2. Some personal property qualifies.
Most 1031 exchanges are of real estate. However some exchanges of personal property (say – a valuable painting) can qualify.
3. “Like-kind” is broad.
Most exchanges must merely be of “like-kind.” You can exchange an apartment building for raw land, or a ranch for a strip mall. The rules are surprisingly liberal. You can even exchange one business for another.
4. You can do a “delayed” exchange.
An exchange involves a simple swap of one property for another between two people;e. But the odds of finding someone with the exact property you want who wants the exact property you have are slim. For that reason the vast majority of exchanges are delayed. in a delayed exchange, you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you. That middleman is called the “intermediary.”
5. You must designate replacement property.
Once the sale of property occurs, the intermediary will receive the cash. You can’t receive the cash or it will spoil the 1031 treatment. Also, within 45 days of the sale of your property you must designate the replacement property in writing to the intermediary, specifying the property you want to acquire.
6. You can designate multiple replacement properties.
The IRS says you can designate three properties as the designated replacement property so long as you eventually close on one of them.
7. You must close within 6 months.
You must close on the property within 180 days of the sale of the old property. YOu start counting when the sale of your property closes. If you designate a replacement property 45 days later, you’ll have 135 days left to close on the replacement property.
8. If you receive cash, it’s taxed.
You may have cash left over the intermediary acquires the replacement property. If so, the intermediary will pay it to you at the end of hte 180 days. That cash – known as “boot” – will be taxed as partial sales proceeds from the sale of your property, generally as capital gain.
9. You must consider mortgages and other debt.
One of the main ways people get into trouble with these transactions is failing to consider loans. Suppose you had a mortgage of $1-million on the old property, but your mortgage on the new property you receive in exchange is only $900,000. You have $100,000 of gain that is also classified as “boot,” and it will be taxed.
10. Using a 1031 for a vacation house requires caution.
You can sell your primary residence and, combined with your spouse, shield $500,000 in capital gain, so long as you’ve lived in your home for two years out of the past five. But this break isn’t available for your second or vacation home. Yes, taxpayers can still turn vacation homes into rental properties and do 1031 exchanges. Example: You stop using the beach house, rent it out for six months or a year and then exchange it for other real estate. If you actually get a tenant you’ve probably converted the house investment property, which should make the 1031 exchange OK.
In 2008 the IRS set forth a safe harbor rule.
To meet safe harbor, in each of the two 12 month periods immediately after the exchange: (1) you must rent the dwelling unit to another person for a fair rental rate for 14 days or more; and (2) your own personal use of the dwelling unit cannot exceed the greater of 14 days or 10% of the number of days during the 12-month period.
Glossary:
Relinquished property: The original property being sold by the taxpayer when making an exchange.
Replacement property: The new property being acquired by the taxpayer when making an exchange.
Qualified intermediary: Accommodator, facilitator, qualified escrow holder. A third party that helps to facilitate the exchange.
Real Estate Porn, Online Listings Accuracy, and the age old battle between consumers’ desire for information vs. Realtors controlling information
Today’s blog post pretty much wrote itself after I posted on Facebook an article describing how much online traffic the two big online Real Estate portals, Zillow and Trulia, have versus the portal controlled by the National Association of Realtors – Realtor.com. Faithful readers began a lively discussion and the entire transcript evolved into an entire blog post. Enjoy!
Zillow and Trulia get more than double the online traffic than the next three major online real estate portals combined, including Realtor.com. Even though listing data on Trulia and Zillow is more frequently wrong or out of date. Do people LIKE being lied to? I guess they don’t call is real estate porn for nothing.
http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=3&id=311058
The Beyond Syndication 2014 report by Arizona-based Clareity Consulting, a real estate industry information technology consulting firm, said that Zillow and Trulia’s real estate networks’ Web traffic totaled 84.6 million unique visitors in May.
That compares with the 40.2 million combined unique visitors in May of three other online real estate networks, the Clareity report said, including Move Inc., which operates NAR’s Realtor.com website.
Nelson asked: This is so true. What is the best app for more accurate info? What do you recommend?
I replied: On a nationwide basis, the most accurate online portal is Realtor.com. For local searching here in South Florida your favorite local agent or brokerage. My MLS on my personal website contains data from our local MLS. Check out www.sunshineguru.com. For a handheld app, use my app – pulls the same data. Download my mobile app atwww.mobileapp.robertdarrow.com
Mike asked: Without access to the MLS, those sites give more information than any of the other ones – even if it is wrong, most people don’t know that. Looking at any one company is only going to show only its own listings, and not every one lists with multiple services. It seems as though those 2 sites have the most listings and most exposure… SO – if that’s not true, why hasn’t the competition stepped up its game? I understand the need to keep the MLS to the pros – but consumers obviously want a way to search for listings themselves before or during a realtor comes into play. Is there an alternative?
Joe asked: In my humble outside the bizz opinion it is because when you search an address they are at the top of every search, so they are paying the search engines to display them first. I agree about the inaccuracies. Zillow at one time was displaying my property for sale when it was not for sale and was not on the multi-list. Some agent who had a criminal record somehow created the listing on Zillow. I was so worried that I called the security guards to notify them my place was not for sale and not to be shown.
I replied: Zillow and Trulia get most of their data from local MLS feeds, but they don’t do a very good job of making sure the data remains accurate when prices change, or when properties sell. That’s why often you see inaccurate prices, or properties listed that are not for sale.
The best online database on a national level is Realtor.com. Sadly they’re behind the curve as far as the sophistication of their website is concerned. But they are almost finished with a comprehensive overhaul so the site might leapfrog over the other two later this year.
Trulia also owns the website “Postlets.com.” and when a private home owner or a Realtor creates a Postlet for a particular property, it pushes that property data up into the Trulia database. But a Postlet has a few problems. (1) anyone can create a Postlet for any property. If I were to create a Postlet for a house, then that house would show up on Trulia as an active listing. (2) Postlets don’t have accurate property information about the status of the listing. No one polices when a property’s price changes, or when it goes under contract. So some properties that are listed by Postlet creation just live in the database in perpetuity.
Local websites, for both COMPANIES and for AGENTS usually get their feeds of property data from their local MLS. So MY website, and MY handheld app reflect exactly what is available in my local MLS. Same for my office’s website, and should be the same for you as well. For example, my brother-in-law likes using the website for Rubloff because he just likes it best. Other people like the website for @properties, or Coldwell Banker. But each LOCAL office website should be accurate in your market. The down side is that these public websites only display current homes for sale. By agreement, they cannot display historic information or sold data for specific properties.
This happened to me as well. Trulia has some sort of database hiccup where a LOT of local (south florida) old Postlets got sent to Trulia by mistake even though the postlets were old and long expired. In that massive data dump, my hose showed up as a new listing as well, and having such nosy neighbors, I had a stern knock on my front door one evening this spring with my next door neighbor demanding WFT I was doing by selling my house so quickly after moving in. The data included all the old photographs and listing information and you’d never have known that the listing was a complete and utter fabrication.
Mike commented back: That down side you mention is a big one – I look at it from the consumer side… As society moves towards (or gets more comfortable in) an “information at your fingertips, i want it now and don’t want to talk to anyone” mentality with the internet, sites like zillow and trulia DO offer sold data and historic information (again – whether it’s right or not doesn’t matter because no one is telling anyone that it’s wrong, and I honestly think it’s more informational than anything else). That information can help someone say “well, maybe I could sell my house,” or “prices are lower now than 5 years ago – maybe I can jump into the market,” or even they’ll find something their realtor missed cause people are never clear in what they’re asking for. Is there data to show that people aren’t using realtors because of these sites? Anything we saw on Zillow had a realtor attached to it if we wanted to see something. I’ll be interested to see the realtor.com changes and whether that reporting is accurate or not.
I replied: The changes that Realtor.com will release will of course be mostly to the usability of the site, the community aspect (Trulia also owns Active Rain – a very popular online community of agents and active property afficianados) but they will never release the historical data. The level of people who buy, and who sell, with a Realtor stays historically fairly constant with fluctuations due to market conditions. When the market is hot (like now) you see more FSBO sellers able to sell successfully. But the number of FSBO sellers does stay remarkably constant around only 12% of transactions. Sometimes more, sometimes less, but right now 88% of FSBO sellers will eventually list their homes with a Realtor to sell. The reason is the whole concept of “Agency.” It means “I stand for you.” You hire me to sell your home, and it’s not just the MLS, or the fluffy brochure, or the coffee and crumpets at open house. But the entire concept of me (and my network of colleagues, extended through the MLS) going out, finding a good qualified buyer, negotiating with them, and making sure they fulfill their terms of the contract, that has stood the ages. The whole concept of Agency in this way has been in place since Feudal England and apparently no matter how much information that home buyers and sellers gain access to can negate the underlying principal of having one person representing YOUR interests, working their contacts and sphere, and getting someone to come to the table with a giant pile of money to exchange for your property. Or the other way around in the case of an Agent working for a buyer.
4 Demands you need to make of your Real Estate Agent
Are you thinking of buying a home? Are you dreading having to walk through strangers’ houses? Are you concerned about getting the paperwork correct? Hiring a professional real estate agent can take away most of the challenges of buying. A great agent is always worth more than the commission they charge just like a great doctor or great accountant.
You want to deal with one of the best agents in your marketplace. To do this, you must be able to distinguish the average agent from the great one.
Here are the top 4 demands you need to make of your Real Estate Agent when buying a home:
1. Tell the truth about the price
Too many agents just take your offer at any price and then try to ‘work’ both the seller and you while negotiating later. Demand that the agent prove to you that they have a belief in the price you are offering. Make them show you their plan to get both the seller – and the bank – to accept that price. Every house in today’s market must be sold two times – first to you and then to your bank.
The second sale may be more difficult than the first. The residential appraisal process has gotten tougher. A recent survey showed that there was a challenge with the appraisal on 24% of all residential real estate transactions. It has become more difficult to get the banks to agree on the contract price. A red flag should be raised if your agent is not discussing this with you at the time of the original offer.
2. Understand the timetable with which your family is dealing
You will be moving your family into a new home. Whether the move revolves around the start of a new school year or the start of a new job, you will be trying to put the move to a plan.
This can be very emotionally draining. Demand from your agent an appreciation for the timetables you are setting. You agent cannot pick the exact date of your move, but they should exert any influence they can, to make it work.
3. Remove as many of the challenges as possible
It is imperative that your agent knows how to handle the challenges that will arise. An agent’s ability to negotiate is critical in this market.
Remember: If you have an agent who was weak negotiating with you on parts of the purchase offer, don’t expect them to turn into a super hero when they are negotiating with the seller for you and your family.
4. FIND the right house!
There is a reason you are putting yourself and your family through the process of moving.
You are moving on with your life in some way. The reason is important or you wouldn’t be dealing with the headaches and challenges that come along with purchasing. Do not allow your agent to forget these motivations. Constantly remind them that finding the right house is why you hired them. Make sure that they don’t worry about your feelings more than they worry about your family. If they discover something needs to be done to attain your goal (i.e. rethinking price), insist they have the courage to inform you.
Good agents know how to deliver good news. Great agents know how to deliver tough news. In today’s market, YOU NEED A GREAT AGENT!
Buyers should expect to come into the office before going out to look at homes
Your Guru works with a lot of buyers that come to me from online lead sources. I do a really good job of promoting my Real Estate Business online and consumers find me through many different websites. Some are my own, and some are the big national sites like Realtor.com, Zillow.com, Trulia.com and ActiveRain.com.
A lot of these clients want me to show them a house that they’ve seen online, and I will offer to meet them in my office first. Since I get some push-back on meeting in the office rather than just dashing out to show the house, I figured it was time to put out a post as to why.
Come Into The Office
I want to meet you. In the office.
The first reason is a basic sense of security. We’ve never met and I’d like you to make the effort to first show up where I work and make sure there’s nothing fishy going on.
But beyond that, the rest of the visit to my office is to save us both a ton of time!
I know that the chance of a buyer purchasing the home that they found online is right around 1%. I would like to spend just a few minutes learning more about your wants and desires in a new home for yourself. And I am certain that with this additional give-and-take that I can be far more effective in locating a perfect home for you. Conversely, I also know that if all the consumer wishes to do is pick out listings online and have me drive them to the property, then all I’ve become is “The Keeper Of The Keys,” – or a taxi driver.
There are a LOT of listings in my market area. I know that if it truly were as simple as picking out a 3-bedroom, two-bath, ranch with a pool, that the search would already be over. Let me be clear – from a brief telephone conversation where you’ve told me that you’re looking for a certain number of bedrooms, a certain number of bathrooms, and a feature or two, that you would already be done. I know that there’s a certain quality to a home that you’re seeking and it’s my job to find that ineffable quality that will truly make a house your new home.
In my market, there are several thousand listings available. There are about 900 single family homes on the market in Fort Lauderdale. In the price range of $400,000 to $800,000 there are almost 200.
I would not be doing my job; never-mind that it would be a huge waste of time and resources; if all I did was drive you to all 200 homes and unlock the door for you.
My mission is to help you achieve your goals and exceed your expectations. By doing this I also hope that you will see the value in my consultation, and that you would also be delighted enough to refer me to your friends, your family and your co-workers.
The Buying Process
My behind the scenes research ensures that I’m familiar with activity in the marketplace and new listings that become available that match YOUR desires for a new home.
The weed-out process ensures that the time that we spend together is spent productively looking at homes that are truly the kinds of homes you’re looking for – the best of the best.
My average buyer looks at 10 to 12 homes. We can usually move through the search process in one long tour, plus a few follow up visits to either re-visit your favorites or to catch any properties we missed on the initial property tour.
I have information on new construction and developments in my marketplace as well as properties that are only offered For Sale By Owner.
Once we’ve identified a home that you wish to put an offer on, I will share my market experience with you so you know what the list price vs. sale price ratio’s are in the area and provide a detailed market analysis on the home we’ve found.
From Contract To Close
Perhaps one of the most important services I offer in helping facilitate the purchase of your home is assisting in holding the deal together once your property is under contract. There is nothing more disappointing than a contract falling through due to some misunderstanding, missed deadline or forgotten detail. And I keep you informed through out the entire process. This includes monitoring inspections and repairs, surveys, overseeing your financing, reviewing your closing documents before closing and a whole host of other details that all need to be shepherded during the process.
I believe in 100% commitment to my clients and their commitment to me. I will give you, as my buyer, 100% attention and loyalty throughout the buying process. What I ask in return is you give me your loyalty and honesty in return. Now that sounds fair, doesn’t it?
First Time Home Buyers Need Love, Too!
South Florida home sellers have become spoiled, and I am one of the guilty parties. The market is hot enough at the moment where we are seeing many sellers restrict the terms that they are willing to accept on their homes to conventional financing only, or cash buyers. In some instances, cash-buyers only!
I must admit, on my most recent listing, my sellers and I would only entertain cash buyers as well, but we justify our reasons because the property was a co-op apartment and it needed such extensive renovation.
First Time Home Buyers represent a significant portion of the market right now
As you can see above, right now, first time buyers want to get into the game! They can’t keep living in their folks’ homes forever 🙂 Note: 38% of the market right now represents first-time buyers!
And they’re willing to make sacrifices to get into their first home! The majority of them have stated that they will make lifestyle changes such as cutting spending on luxury goods, entertainment or even cancel a vacation or two to make their home buying dream a reality.
It makes perfect sense, although in the current market, so many over-eager sellers think that they’re in the drivers’ seat and can be as picky as they like. But it’s wise to keep in mind that if you restrict the terms you’re willing to consider, you MAY be cutting out 38% of your potential buyers.
Top 4 Derogatory Credit Events and the waiting periods before you can buy a new home
Have you ever wondered how long you might have to wait after Bankruptcy, Foreclosure, or Short Sale before you can purchase your new home?
Check out the chart and see how long a lender will require you to wait before you can borrow again.
Link to the PDF here: https://sunshineguru.com/wp-content/uploads/2013/11/Derog-Credit-Chart-Fisher-Darrow.pdf
Interestingly, I recently had a client that was able to purchase a new home just two short years after his short sale. A wonderful confluence of events allowed him to use his VA eligibility to purchase with nearly zero money down.
He was also able to begin the mortgage process several weeks BEFORE the two-year anniversary date of his short-sale closing, so that he was able to close in a matter of days after the anniversary date passed.
