My Mortgage Mod: CitiMortgage Bets On Low Interest Rates?

Last week I received a curious package via UPS at my doorstep. I hadn't ordered anything so I was surprised that somebody would overnight something to me.

I opened the package to find a giant over-sized envelope that read "Don't Delay. Return your  modification agreement today!"  Hmmm...I don't remember ever requesting a modification of any of my mortgages.  Here is the cover letter I found inside (click to enlarge):

  
This particular loan is on an investment property we own.  It appears they have sent us this package just as our ARM is due to start adjusting.  The question I have is why would CitiMortgage offer this?  One of my favorite real estate industry blogs is CalculatedRisk.  I emailed Bill (CR) and posed this question:

What incentive does Citi have to do this?  If inflation is really in the cards, fixing a 5.5% rate is going to kill them when rates increase to 9%.  However, if a rate reset increases my payment, they would take a haircut on the property in the off chance that I foreclose due to cash flow constraints.  

Is CitiMortgage betting that low interest rates are foreseeable for the next decade? (betting on a Japanese style real estate market?)

Bill responded:

Hi Jeremy, I've heard similar stories (but with different details).  This sounds like one of those blanket mod programs with the bank offering to modify all loans that meet certain characteristics (like ARM, non-owner occupied).

Citi has probably decided that the losses will be less for the loans as a group if they offer this program.

Also - Citi might be able to sell the loan easier after this mod (seems weird, but it could be).

When I called CitiMortgage, the gal on the line confirmed this approach.  They are more concerned with loans staying current and performing than they are with interest rate risk.  I accepted their terms and we should be well on our way to a recasting of amortization and a rate reduction.

Here is a copy of their agreement they sent me (click to enlarge):

I find it interesting that they make a fuss about the property needing to be in my name and not sold to another party as would be the case if I had sold it in a seller-financed transaction.  Most mortgages have an acceleration clause regardless of this modification agreement.  I find it interesting that they recognize the possibility that I may have seller-financed the property to a buyer and therefore cannot qualify for the modification but they don't threaten to call my existing loan either.  Perhaps this is recognition on their part of a credit deprived housing market?
   
Another interesting side note here is that because our loan was interest only, I have been paying about $100 a month more on the loan to pay down the principal.  If I continue to do this with the new rate and term in place, the mortgage payoff on the home goes from 30 years down to about 20 years from the present day.  This modification will save me 5 years!  Wohoo!

Ogden Rising: Innovative Partnerships Restore Historic Gems

Here is a home we have been watching in our neighborhood over the last year:

Video Courtesy of KSL.com

This house is listed with my friend David Willis from Terra Venture Real Estate.  Of course, if you are interested in taking a tour of this victorian gem, you know who to contact. ~ Grin! ~

"Distressing" Follow Up On Two Ogden Cities' Charts

Last week I posted Tale of Two Ogden Cities: In Charts showing market metrics and trends for the East Bench of Ogden compared to the Trolley District area just east of Downtown.  One of the most remarkable charts showed the trend on prices.  Here is that chart again:

So what could be driving this decrease in average sale price?  To figure that out, I took a sample of all the homes that sold in these neighborhoods over the last year.  Here is a breakdown:

It looks like there are a significant amount of distressed sales (bank owned and short sale) occurring in both markets.  Here are the percentages illustrated:

So what does this mean?  Well, the red and blue categories are where you want to be buying investment grade "scratch and dent" properties.  The green category is where you want to be selling.

The non-distressed sales compete with the distressed sales in the market.  However, distressed sales typically are not in good physical condition in comparison to non-distressed sales.  Therefore, the distressed sellers will discount these beat up properties to move them off their books. 

What has happened, especially in the Trolley District, is that with half of all sales being distressed, and the price discounted accordingly, the average price is pushed down as we see in the chart at the top.  The average price for non-distressed homes has come down over time but is not nearly as much as the distressed sales. This math all gets mashed up together to produce our trendline in the top chart.

We can see that the East Bench has this dynamic going on as well but to a lesser magnitude. With the mix of distressed sales being diluted, that explains why the average price has not come down nearly as much as the Trolley District.   

Nevertheless, homes can and will be sold at top dollar in this market.  The catch is that the home needs to be free from deferred maintenance and in pristine condition.  Here is an example.  Patience is also necessary because market times are 4 to 5 months for these kinds of properties right now. 

The Tale of Two Ogden Cities: In Charts

In Ogden there is a strong bifurcating force called Harrison Blvd.  I was toying around with the MLS statistics the other day and I thought I would explore exactly what the differences are between the "East Bench" which is located east of Harrison Blvd. and bounded by 20th Street to 36th Street as compared to "The Trolly District" which encompasses 20th to 30th Streets west of Harrison Blvd to Washington Blvd.  

Queue the charts please....

In this first chart, you can see that the Trolley District has had more sales per month on average than the East Bench.  Part of that may have to do with density being lower on the East Bench.  Its interesting to see that sales peaked on the bench in the summer of 2006 while the Trolley District had a cathartic surge in the summer of 2007 (which then quickly collapsed as the subprime fiasco tanked the mortgage markets).  The moving average for sales volumes for both areas of Ogden are back to 2001-2002 levels.

 
This next chart shows the median days on market for each month.  You can see that during the bubble that market times were extremely short for the East Bench and moderate in the Trolley District.  Since sales volume has been so low for the last several years there is a ton of noise in the chart.  The moving average helps us get a better idea where things are trending.  Market times are now longer for the East Bench than they are for the Trolley District on average.

Finally, here is the chart that everyone wants to see.  Where are values headed?  Well, on average, they have been headed down.  Again, notice the "noise" that exists in recent years due to the low sales volume.  The data shows the range of values.  Fortunately, the movement down has been so slow that it is still profitable to fix and resell homes...as long as you don't take years to complete your project.  Another interesting thing to see is that homes on the East Bench are typically priced 50% more than homes in the Trolley District.  East Bench values also tend to lead in price movement.  Additionally, while the Trolley District has returned to pre-bubble price levels, the East Bench has not yet given up all of its gains.  This may have to do with the fact that more homeowners live in their homes on the East Bench than those in the Trolley District.  Owner occupants are less likely to sacrifice on price when they sell their homes thus making prices "sticky".

FOR SALE: Updated 3 Bed Craftsman Bungalow

Here is a fine example of the craftsman bungalow style home with tasteful updates.  The home has 3 beds, 1 bath, and a garage and carport.  Nice woodwork and hardware inside with an updated kitchen and bath.

Here is the video tour:



To view or schedule an appointment, please contact me.

FOR SALE: 2 Bed 1 Bath Updated Victorian Cottage

For those of you looking for a cute 2 bedroom home with lots of updates, check this out.  New windows, roof, kitchen, plumbing, bath, electrical, and more.  It's a must see.  Located at 2962 Ogden Ave.

Here is a video tour:



Be sure to contact me for details and current pricing.

JUST SOLD! Masterpiece Restored Craftsman Bungalow

In April of 2010, I scoured the market and found this home for my clients who were looking for a house to restore.  At the time the home was just 1 Bedroom, 1 Bath, and choked of cigarettes and dog urine.  Our final acquisition price was $55,000.

My clients got to work and added 3 bedrooms and another bathroom as well updating all the systems and amenities in the home.  We closed on the home with a new buyer at $123,900.  As you can see from this video, the transformation is absolutely remarkable:



I am currently seeking capital partners to do more work like this in Ogden.  Here is a project I am working on,  If you are interested, contact me and we can discuss.  You can see past projects HERE.

Turning Point? Charts Indicate Possible Market Thaw Coming

It has been a while since I have updated my charts on the multi-unit market in Weber County.  Back in 2009, I wrote a half dozen or more seller-financed transactions for investment properties and it seemed the market was trending that direction.  The charts I put together at the time certainly seemed to show that.

Today it appears that the market is entering a new phase.  Here is our update chart showing the share of the multi-unit income property market according to the type of financing:

Keep in mind that 2011 figures are Year-to-Date.  It appears that cash continues to dominate the market as the acquisition method of choice.  Interestingly, seller finance and FHA purchase have declined significantly while conventional purchases have seen an upswing after a long plunge.

What is also interesting to see is our transaction count:

We appear to have bottomed out in sales volume in 2009.  We are only half way through 2011 and at our current count we may top out near 90 sales or so.  That will be a significant increase from 2009 and 2010.  This is an important market signal.  To understand more about this signal, lets take a look inside some intriguing market dynamics:

This chart shows the $/SQFT of sales based on the terms of sale whether that be FHA, Conventional, Seller-Financing or Cash.  What we see are some pretty stunning trends:

1.  Is it any wonder that sales volume is dominated by cash when the $/SQFT is in free fall for this type of purchase?  Cash buyers can anticipate a giant 36% pricing advantage compared to conventional and seller-financed buyers!

2. The black box shows the recent data points that are bringing the average price on cash purchases down.  They range from $15/SQFT to $32/SQFT.  When replacement costs are $85/SQFT, why would anyone build anything right now?  Investors can put an additional $10-$20/SQFT in capital improvements into these properties and have brand new-like structures that cost much less than new construction.

3.  Notice that seller financing and conventional financing price points seem to lag  the direction of cash price points by a 9 to 12 month period.   However, notice that they are also much less volatile than cash prices.  That makes sense because they are using other people's money.  The price points are "sticky".

3.  Now lets talk about that important market signal. The sales volume signal is related to the overall decrease in price we have seen in all three financing categories.  We saw this same signal in 2003 when prices troughed in Weber County and sales volume accelerated.

In an exciting note, we may be witnessing the first signs of the multi-unit market turning the corner.  As sales volume increases, a floor will be established on pricing and we will build on value from there.  Sales volume increased for a full year in 2003 before prices began to increase in 2004.  We may still be 9 to 12 months out before we establish a bottom on pricing.  Nevertheless, this is interesting to watch and hopefully a sign that a market winter will give way to spring.

If I were a cash investor, I would be purchasing as much property as I could right now.

Historic Salvage: Reclamation Brick BBQ

A year ago I sold a turn of the century home that one of my investor clients had restored.  Part of their fix-up included removing brick and pouring new concrete for the cellar access.  The bricks that lined the cellar stairway previously were giving way and ready to collapse.  When we closed on the resale, the buyer indicated they did not want the old bricks so I kindly removed them and stored them in my backyard.

Our plan was to build a BBQ stand next to our pergola (which is still a work in progress).

The first step was to procure the items I needed from Home Depot:

 The 3/8" pointing tool is a handy finishing tool.  I also used a square trowel.

 Duplex nails are best for putting together concrete forms.

 Hearty concrete for my base.

Type-S mortar for sticking the bricks together. (Type-N mortar is for decorative finishing not structural use.)

The first thing I did was put a prototype structure together to make sure I had enough bricks for the job.

After I put this together, I realized I had enough bricks but I needed to follow my written plan so the BBQ would fit on top.  The finished project looks quite a bit different than this.

The next step was cleaning up the brick by scraping off the 105 year-old mortar.  This was not as hard as I thought it would be but it was still time consuming.  To do this, I scrubbed the bricks against a cinder block.

Next came pouring the foundation.  To do this I built a frame out of 2x4s.  I calculated that I needed 240 lbs. of concrete to fill my 48"X28" space.  Unfortunately, I did not count the dirt that I dug out of the bottom of my frame so when I poured the concrete I was way short of the top of my forms.  It's pretty hard to level concrete that doesn't reach the top of your forms.

In a panic I stuck some clinker bricks in the wet concrete to see if I could get it to flush out with the top of my forms.  That just complicated my problems.

When I put the brick in concrete, they stuck out above my forms preventing me from running my scrap 2x4 over the top to level everything.  I also started to crowd into the space that I would be laying my BBQ brick.  The moral of the story is buy more concrete than you need so you don't have to improvise like I did here.  I also discovered that the form I made was measured to the exterior dimensions instead of the interior ones.  Whoops!  I poured my foundation smaller than I had planned.

After letting the base dry and harden for a week, I started laying the brick.  Two bags of spec mix was exactly the right amount for the job.  Also, after reviewing my plans, I determined that even though the base was smaller than planned, it was still large enough to lay the brick where needed and provide ample support.  Laying the brick took about five hours as I learned how to do it right and keep things plumb as I went.

 Also, while selecting bricks from my pile, I was spooked by the biggest black widow I have ever scene.  It jumped out at me with fangs salivating after I removed a brick and disturbed its home.  Feisty critter...but no match for my shoe.

  
In the end, the finished product turned out quite nicely.

 Now on to the pergola...

Tenant Mayhem: The Heist

Typically, rents from my tenants are collected on the 1st of the month or very shortly thereafter.  This month has been no different for my tenants...except for one.

I rented one of my units to three college kids who wanted to roommate together.  I am not fond of roommate arrangements and after this story, you will know why.

When these tenants applied one of the applicants had good credit and the others had shoddy credit.  I told the tenant with good credit that I would lease to them but that he would be carrying the water for the other two by putting his good credit on the line but that they still would all be responsible for late rent or damages to the property.  They understood the responsibility and we executed a lease.

First, before I share this story, let me introduce the characters and change their names so we can keep the story straight:

Dudley Do-Right - Dudley had the good credit and was the most rent worthy.  He put his good credit on the line if something went wrong with the lease or property.


Snidely Whiplash - Snidely had poor credit but a clean criminal background.  He helped pay the deposit.


Grieving Gus - Gus was the a roommate that showed up later after the lease started and helped pay the rent.

Rents have been timely for the last seven months.  Typically I get a call from Snidely and he would find me to bring rent.  I never had a problem with these guys meeting their obligations.  Then, this month the 1st came and went.  No call.  Then on the 2nd I got a call from Snidely and he says "Uh, hey, just so you know, I mailed rent yesterday because I have been so busy."  I said that was fine because if he mailed it I should see it in that day's mail.  When the mail arrived that day, there was no rent.

The next morning I get a call from Dudley saying that their home had been broken into.  I instructed him to contact the police.  About three hours later I got a call back.  What was initially thought to be a home invasion showed no signs of forced entry from the exterior.  Instead, Gus's bedroom door had been kicked in and thousands in cash kindly removed his and Dudley's rooms.  Snidely's bedroom door was untouched however and upon opening it was discovered that all his things were gone.  Hmmmm.... 

Then, the next door neighbor disclosed that earlier that morning Snidely claimed an emergency and got a ride to a hotel near the Salt Lake Airport from her.  When the hotel was called they said that Snidely had checked out 15 minutes previous. Snidely purchased a plane ticket with Dudley's and Gus's cash and skipped town.

Fortunately, Dudley and Gus still had enough reserves to pay rent and they are paying to have the damage repaired.  However, I wonder why these guys would be so unwise as to stash their cash at home instead of the bank. 

Anyway, Snidely just became a less marketable tenant.  I wonder if I will get a call from a future landlord looking for a reference.

  

Ogden Rising: Ben Lomond and MacCool's Grand Opening

The Ben Lomond Hotel and the new MacCool's restaurant held on open house today to celebrate the renovation of the hotel and the Grand Opening for the Ogden MacCool's.

I had a chance to visit with the restaurant owner and hotel owners.  They were very gracious and it appears they have hired highly motivated and professional staff.  I was impressed with their enthusiasm and attention to detail.

The first stop was MacCool's.  The owner has two other restaurants currently in Salt Lake City and Layton.  The Ogden location boasts a loft area for larger gatherings of 12 or more and a well lit street level room that can accommodate 20 or more.  There are also separate tables and a bar. The place is well furnished and had a nice atmosphere.

It became apparent that a lot of capital has been invested in sprucing up the Ben Lomond.

There are several large ballroom spaces that are available for rent for receptions, parties, or other gatherings.

Due to the backlighting, my camera doesn't quite capture experience but it was very elegant.

The elevator is mirror walled.  Here I am with Ryan Kell of Plaid Social, who is working on marketing for the hotel.

According to the staff that I spoke with, the hotel originally had 350 small (and inadequate by modern  standard) rooms.  Those rooms have since been reworked into 90 large and spacious suites.  Each suite comes with a separate furnished living space, a bathroom, and bedroom.

    
The upper level of the hotel commands great views of the city and houses a conference room in the north wing. 

If you are interested in hosting a party at MacCool's, contact Scott at 801-675-5920.  If you want to know rates and reserve any spaces in the Ben Lomond for gatherings, give Mike a call at 801-644-7240.  (Update: You can read more about the hotel renovation in a Standard Examiner article.)

FOR SALE: Two Story Turn-of-the-Century Home

I just listed this cute traditional home from the early 20th century.  This home was built in 1904 and has 1890 SQFT, 4 bedrooms, and 1 bath.  It sits on a sizable .20 acre lot and has a 1 car garage with room for a workshop.  The home is located within walking distance to the county library, Ogden Riverwalk, 2 city parks, and worship centers.  Check out the video tour:



If you would like to view this home or want current price information, send me an email or give me a call.

 

JUST SOLD! Bargain Mini-Cottage

There is an interesting home manufacturer in Texas who makes "tiny" houses.  These homes are typically under 700 SQFT.  You can check out their website here.

Well today one of my clients closed on purchasing one of the Tiny Texas Homes' cousins here in Utah.

Clocking in at just over 800 SQFT (that number includes a 150 SQFT basement) this little cottage was purchased for the princely sum of $38,000.  The home is a 2 bed 1 bath configuration.  The upstairs is a loft style bedroom and the 2nd bedroom (if it can be called that) is where the big window is to the right of the front door. 

My client will be doing some cleanup and curb appeal enhancements and I will be managing the property as a rental for them.  We anticipated the place will easily fetch $575-$625 per month.  My client acquired the property with financing while putting 20% down and utilizing a 15 year term.  Even with the short amortization, the monthly payments are barely over $300/mo.  That is good investment math.

Congrats to the buyer on purchasing this fun little property! 

FOR SALE: Updated 3 Bed 1 Bath Vintage Cottage Bungalow

If you are looking for a very affordable home in an up and coming neighborhood in downtown Ogden, I present this cute vintage cottage.  It is a MUST SEE:



The home is a couple blocks from my own home and was remodeled in 2005. It has new windows, casings, kitchen, furnace, and more.  The floorplan has 3 bedrooms and 1 bath.  The home is situated on a large .25 acre lot that is ripe for landscaping or a new garden.  Neighbors are very friendly.  This home is walking distance to the Ogden River Walkway, The Front rock climbing wall, 2 city parks, the county library, The Junction, and worship centers all around.   

If you are interested in learning more about this home be sure to email me or give me a call.