Utah Housing Provides $70 Million to Home Buyers

Utah Housing Corp stated in a press release yesterday that they have just released funds in the amount of $70 Million to help low and moderate income families purchase homes. 

Utah Housing is a great program for buyers with minimal funds.  Most buyers can get into a home with as little as $500 using this program.  Fortunately, their underwriting standards are strict enough that they avoid high rates of foreclosure.

The drawback to Utah Housing loans is that they compensate loan officers minimally for originating the loan.  On top of that, since it's a government program, the work involved is much more intense than the normal loan process.  It's been about 18 months since I last closed a Utah Housing transaction with a homebuyer and it definitely had my client and the loan officer jumping through paperwork hoops.

Nevertheless, Realtors and their qualifying clients may be able to take advantage of the program in a post-tax credit marketplace.

If you are a homebuyer and would like to know if you qualify for this program, give me a call and we will find out. 

Medieval Real Estate: Lessons for Today

I continue to plod my way through Adam Smith's epic The Wealth of Nations.  In the 535 pages I have read so far I have discovered a treasure trove of wisdom.  Now, only 712 more pages to go.  I highly recommend you pick up a copy. 

One of the most recent topics I have been reading about has to do with the rise of towns in medieval Europe.  The natural course of development occurs in stages.  First, agriculture is cultivated and developed, then towns arise as excess farm production allows people the freedom to pursue manufacturing goods in a more centralized urban center, and finally the excess production of the towns allows for further development through trade with other regions or countries.  This is the natural course that America has followed.

Interestingly, Europe developed in a very unnatural way in this progression.  The usurpation of land by barons and lords during the feudal era stymied the cultivation of agriculture as Europe entered a period of almost perpetual violence while competing barons and lords attempted to conquer the land of their neighbors.  Serfs were slaves of the manor beholden to the land which was beholden to the lord.  Towns arose almost by accident as a result of lords emancipating their serfs in exchange for this new class of "burghers" renting land from the lord at a fixed rate for a long period.

Nevertheless, the lords and barons accumulated a lot of land.  Land was kept in families over hundreds of years and laws prevented the estates from being broken up.  As the population grew, available land became more in demand but the market supply did not increase to accommodate the population growth.  So, by the time Adam Smith was writing The Wealth of Nations in 1776, he observed that land was a loosing investment because the prices were so extremely high.  He compared a parcel in the countryside of England fetching 3,000 pounds while the equivalent American parcel could be purchased with 40.  Is it any wonder why people immigrated to America?

Anyhow, there are several things that I got from this illustration:

1.  Artificially dictating who can and cannot own land is a detriment to all of society.
2.  Manipulating supply of real estate has a real tangible effect on the price it will command.
3.  Land is best valued for what it produces and not as a source of power or security.

The question we have to ask ourselves is how is society affected by our current economic predicament.  Does our system exclude some while rewarding others?  I can think of credit worthy people who ought to be able to purchase property who are shut out of the system while unworthy credit individuals are given incentives to purchase property.  Also, banks right now hold a huge amount of REO property on their books.  However,  the rate of their release to the market is extremely slow.  We see in suburban areas where REO homes receive multiple offers and where purchasing the homes as an investment is simply out of the question.  It commands too great a price to be profitable as an investment.  Finally, let us hope we never return to a feudal system of government where security and power, instead of farm production and utility, was the ultimate purpose of land.  I know I wouldn't do to well as a serf.
    

Analysis of a Bargain: 2056 Orchard Ave.

This week I closed another profitable investment grade property with a client.

The previous owner of this property borrowed $87,000 against the home.  It is currently a 5 Bed and 2 and 1/3rd bath configuration.  This home boasts the only 1/3rd bath I have ever seen.  It has a closet that was converted to a shower and a toilet...hmmm.

The property came on the market back in March of 2009 at a retail price of $94,900.  The home was definitely not in retail condition and so gradually over time the price was lowered.  In December of 2009 I placed an offer on the home for $53,000 when the price was reduced to that point as a short sale.  However, the bank that was approving the short sale declined the offer.  In February, the agent called me back and said the bank would approve $53,900. I notified one of my clients and we made that work.  After 90 days in the the short sale approval mill, we finally received authorization to close.

I estimate this home will be worth $110K-$115K post fixup.  It will look great and make a handsome profit when completed.  Stay tuned...

Multi-Unit Market Update: Cash Is King

We are about half way through the year and I decided to take a look at how the multi-unit market is handling things with financing constraints being what they are.  I was curious to see if seller financing was continuing its trend upwards.

Here is an updated chart:

What is remarkable to note is the dramatic increase in cash purchases.  FHA, Conventional, and Seller Financing all share the same portion of the market but cash deals constitute nearly half the market.  What is going on here?  Well, a while ago I wrote Dead Zone: Lowest and Worse Use where I explained the dynamic affecting the multi-unit housing market.  My thoughts are that cash purchases are a direct reflection of this dynamic.

If you have cash and want to make a return on your money, multi-unit housing may be a good place to do it.  Returns of 12% annually or better are possible and prices are very low right now.  

FOR SALE: 138 Acres - Lake View Wooded Lots! Eden, Utah

For anyone interested in bargain priced land in a resort location this is a must see. This 138 acre parcel is bank owned and for sale for $2.5M. Property will qualify for greenbelt tax deferment. If you would like plat, subdivision plans, and other details, please contact me.

Follow-Up On EPA Madness

Many of you responded yesterday to the ridiculousness of the new EPA rule.  Several of my clients chimed in.

Jed writes:

Yes Jeremy this is absolutely true!  And contractors, landlords, and homeowners will take a huge liability working on any home dealing with paint (drywall,baseboard,etc...) built before 1978.       

My company has already been forced to train its employees on lead based paint at a cost of $200 per person plus licensing with the state at around $600.00.  We are also required to test for lead based paint(at a cost of $200-$400 per home) on any home before 1978 before we can do any work (which could create delays of up to a week).  They are telling me that as a contractor i am liable for every layer of paint that has ever been painted in a home with no affordable full-proof test available. ---What???      

So yes--we have already felt the effects of this new EPA mandate--the costs of which will be pushed to homeowners, landlords, and insurance companies.  If a positive lead test is found in a home, mitigation will be similar in cost to asbestos and mold mitigation--which we all know is not cheap.  So, I guess the question:  is this regulation really to keep us safe-- or to give lawyers another way to line their pockets???

 Jed works in the contracting business.  I reviewed the state program that is supposed to substitute for EPA regulations in this regard.  You can find those rules HERE.  Jed is right, they are treating lead paint like asbestos.  We all need to invest in companies that sell those plastic space suits.  Question:  When will the FDA start treating trans-fats like they are asbestos? 

Now what is the gut reaction out there?

Mark writes:

Interesting topic.  I was talking with an insulation contractor yesterday about this.  He was describing the process that a contractor must follow in order to comply.  Plastic sheeting around the house, respirators, etc..  It was rather ridiculous.  According to a window contractor it will add $400 to the cost of each replacement window to comply.  This may be an exaggeration, but even so this wonderful rule will add substantially to the cost of any remodel.  I envision investors just won't mess with houses older than 1970.  It's sure making me think twice about what to do next.  So much for downtown Ogden

I can corroborate the window story.  In talking to another client of mine he recently received two window bids.  One for $2,500, and another for $7,500.  The difference?  The second bid included a lead-remediation fee.  Mark makes an interesting point about investors wanting to steer away from homes built before 1978.  I would say that the supply of investment houses newer than that is pretty small.  If we increase demand for investments newer than 1978 then the prices go up and they aren't investments anymore.  So, that leaves us with the existing supply of investment housing older than 1978.  What will happen to them?  Investors are business people, they aren't going to buy an investment and lose money just because the EPA says they should.  Something has to give.  What will give?  The banks and owners if investment grade property will have to foot the bill via lower house prices.

So right now the question is, how does the State of Utah plan to enforce this law? If it is soft on enforecement, price changes may not need to happen.  If they are rigorous, then price adjustments will be necessary.  Regardless, we will see how things play out over the next year.  I believe it will take some time for the market to become aware of this new law and adapt to the changes.  In the meantime, I will be talking to my friends in State Government to try to neutralize this ridiculous law.    

Photo of the Day: Over Underkill

While looking at older homes, a client and I stumbled upon this odd construction technique.  The builder had the right idea to support the floor with a 6x6 post.  However, he neglected to put the 2x6 cross beam in a vertical position to support the load of the floor joists.  Whoops!  Notice the nice arch going on there...that's not lens distortion from my camera.

Amazingly, this handy work is about 80 years old.  It's a testament to the integrity of the materials they used back then.  A 2x6 today would have snapped if used this way.

The Power To Destroy: EPA Punches Contractors, Investors and Property Managers in Face with Iron Fist

Outrageous news from Washington D.C. as the EPA has clenched its regulatory fist and is throwing it into everyday life of contractors, real estate investors, and property managers.  On top of that, they have created incentives unleashing a torrent of litigation and frivolous lawsuits.  Effective April 22, 2010, the EPA now mandates, at the threat of your absolute financial ruin, Lead Paint Certification and Practices for anyone who remodels property.  I am not exaggerating.

Please watch the following video links:


Whats the Reason for The Rule?

So, have either of these three people ever held a hammer in their life?  I doubt it.  Do they even have children of their own? Why are they worried about my children? Isn't that my job?

Who Does the Rule Cover?

Well isn't that just fine and dandy.

Is it Possible to Avoid the Rule?

I like how they say that lead-free houses should have a marketing advantage as rentals.  Do these people even own rental property?  PROBABLY NOT!  I have never met a tenant in my life that cares about lead paint.  When I give them the brochure they immediately chuck it in the trash.  Do they care that my property has bragging rights as a lead-free home?  No.  

And here is the clincher everyone...PLEASE WATCH...

WHAT ARE THE PENALTIES?

They beat around the bush and then show their hand.  $37,500 per violation!  WHAT?!  ARE YOU KIDDING ME?! That's a dagger in the chest.  In this market, that will bankrupt anyone who violates this ridiculous new rule.  And, to top it off they rely on tips from citizens (angry tenants being evicted) to report violations.  And just to twist the knife after its been securely lodged in your chest, the accusers (neighbors, passers-by, anyone who suspects a violation) have the right to sue the violator for damages and court fees.   UNBELIEVABLE!

I can't even begin to express how over reaching, punitive, and counterproductive this rule is.  These bureaucrats have no real work experience and will destroy many average Americans with the stroke of a pen.  The only result of this will be more contractors out of work, landlords letting their properties atrophy, and a declining standard of living for tenants.

This must be stopped!

Please contact Representative Rob Bishop and let him now how you feel about this issue at:

Washington office:
123 Cannon Building
Washington, DC 20515
ph: 202-225-0453
fax: 202-225-5857

 

Stubborn Horses

Some colleagues of mine and I had an interesting experience with a client this week.  Back in October, I was approached by a gentleman who had heavily researched real estate as an investment tool and wanted to shop for a multi unit property as an owner occupant.  After viewing a few properties his interest cooled.

He recounted the story of how the real estate agents he had worked with in the SLC area had not served him well or were mostly incompetent.  He recognized my experience and knowledge in the field and was drawn to that to help him invest.  However, his desire to live in SLC, a market in which I am not that familiar, was important to him.

So, as the end of the tax credit came in April he asked me to show him some homes in Salt Lake.  I referred him to a superstar friend of mine and agent who I knew would serve him well.  They viewed many properties, placed one under contract, had that one fall out due to maintenance problems, and then found a sweetheart deal in Suguarhouse.

This property in Sugarhouse ranked in the top five of the best deals in that area for the last year.  Nevertheless, my client started running the numbers, and then more numbers, and yet even more numbers until he convinced himself that the rate of return on his investment was equivalent to his Reward Checking account.  Now, from the angle he was looking, perhaps that was true...I can't know for certain.  But, what I do know is that the perspective he was looking at did not include amortization, tax deductions, tax credits, appreciation, rent increases, and other aspects of the investment property.  After many many hours of scouring the market to find the right deal, he ultimately threw it away because he couldn't be certain is was "good enough".

This kind of behavior is aggravating from an agent's perspective but should be even more aggravating from the client's perspective.  What he has done is set a precedent for not moving forward.  He will never achieve his goals unless he takes the plunge and purchases that first investment property.  No deal will be perfect enough for this guy.

You can lead a horse to water but you can't make him drink.  This old saying is even more bewildering when you find out that the same horse begged you to take him to water beforehand.

Ogden No. 2 Most Livable City In America

Forbes compiled its list of the most livable American cities.  Coming in at No 2 is our own Ogden City!

Click HERE for a link to the Forbes report.

Lets keep making our city a great place to live, work, and play.

The Cunning Deceitful Tenant (Turnip)

I recently posted about problems I have had with a tenant in BK: Tenants (Turnips) Have It Their Way.  Well over the weekend the drama continued to unfold.

You might recall that after signing a promissory note to break his lease, my tenant immediately filed bankruptcy, thus, virtually voiding the note.  He was to pay rent for two weeks of May until our lease agreement ended on the 15th.  Well Thursday I get a disconnect notice for my electricity.  This is very odd because I make equal payments that are auto drafted from my bank account.  As I looked at my statement it dawned on me that my usage was much more than we usually use.  I turned over the statement to discover that my tenant's unit was being included in my bill.  In my mind I imagined that he had quietly changed the bill back to his name.  To my horror, I discovered from the power company that he had NEVER changed it to his name!  I had been unwittingly paying on his bill for 8 months!  What unfortunate timing.  Not only did he abscond from his lease via bankruptcy, he mooched off me to the tune of $400 in violation of our lease.  Of course, he refuses to return my calls and it appears he has abandoned his unit as of yesterday. 

Fortunately, he has already filed bankruptcy.  This bill is new and outside of the bankruptcy. With collection fees, penalties, notices fees, interest and everything else that I can legally claim, justice will be served...eventually.

In the meantime, here is what I learned from this experience:

1.  I will be changing my leasing policy to mandate that tenants have the utilities in their name PRIOR to receiving keys.  Most landlords already do this.  I learned the hard way that this is the way to do it.
2.  I will no longer be renting to bad credit tenants without either a co-signor or a large deposit.  
3.  You always find out people's true character when money is involved.

Hopefully you can learn from my experience before you discover it the hard way like I did.

   

Uncle Sam Plays Mortgage Monopoly

The Wall Street Journal has an interesting article about the government role in the housing market.

According to the article, the Government Sponsored Enterprises (Freddie Mac, Fannie Mae, and Ginnie Mae) backed a whopping 96.5% of all loans issued the first three months of this year.  This makes sense to me.  I closed a conventional loan with a client this month for the first time since September 2008.  Traditional bank mortgages and the private sector mortgage markets are scarce indeed.   

You may see Zions Bank, Wells Fargo, and Bank of Utah issuing home loans.  But the truth is that almost all of these loans are made available from the same source: The GSEs.  This lopsided mortgage marketshare enjoyed by the GSEs just creates weirdness in the housing market.

Yet, where there is crises there is opportunity as default rates for government backed loans remains high:

Freddie Mac on Friday said that the number of mortgages that were 90 days or more past due fell to 4.13% in March from 4.2% in February, the first monthly decline in three years.

"We're certainly going to reach a point of stability this year, but it's going to be stabilizing at these very high levels," said Ted Jadlos, president of LPS Applied Analytics, a real-estate research firm. The backlog of delinquent loans in some stage of foreclosure will keep pressure on housing markets and could take two to four years to clear, he said.

So, if you are bargain hunting, here is your two-to-four year warning.  The buyer's market will last several more years.  It's better not to get caught in a seller's market trying to buy real estate bargains.