Norada Real Estate Investments

Beyond Subprime in the Mortgage Market Meltdown

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During the housing mania, it seemed that the majority of the United States suffered from a mass delusion. They believed their properties would always go up in price, but their mortgage payments wouldn't follow suit.

We have mountains of debt to work through yet. The last bubble was one for the ages. We've all heard stories of one kind or another…

There was the glass cutter who earned $5,000 per month, pretax. WaMu gave him a $615,000 home loan with payments of $3,600 per month.

There was a house – a shack, really – that appraised for $132,000 and got a mortgage of $103,000. The owner hadn't worked in 13 years. Upon foreclosure, a neighbor bought the house and paid $18,000 just to tear the thing down.

And the most eye-popping of all: A house in Fort Myers that sold for $399,600 on Dec. 29, 2005 – only to sell for $589,900 on Dec. 30, 2005.

America, it seems, just went crazy – borrowers, lenders, nearly everybody. These anecdotes and others are told in a new book titled More Mortgage Meltdown by money managers Whitney Tilson and Glenn Tongue.

But what caused the mania and how we got there is less to the point than what happens from here.

“If the problems in the mortgage market were limited to subprime loans, then the carnage would be mostly behind us,” the authors note. Subprime loans were the riskiest mortgage loans. Prime loans were where the borrower made a substantial down payment and had good credit history. Subprime loans, by contrast, were to borrowers of poor credit quality and spotty job histories.

The bigger problem is that the mortgage bubble infected a number of areas beyond just subprime. The subprime crisis was the first to drop, like a marathon dancer that falls to the floor exhausted. But there are still other dancers on the floor ready to topple over too.

Take a look at this next chart, which has gained some currency in the worried circles of financial people. It's worth a bit of study. It shows you the other dancers on the floor.

[Read more…]

Why Real Estate is Still a Good Investment

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Now that the housing bubble has crashed, a growing number of academics, journalists, and financial gurus are trying to reassess the value of real estate as a long-term investment class.

There is a growing — and much needed — consensus that much of the conventional wisdom about real estate as a “great investment” is over-hyped and oversold by the National Association of Realtors who also happen to be a powerful lobbying group, dictating our national housing policy.

The Wall Street Journal's Cheapskate columnist looks at housing and reaches a good conclusion (subscription required), explaining that the real financial return of homeownership comes from not having to pay rent: “That's why you should buy as much home as you need — but no more. A bigger home than you need isn't an investment — it's an extravagance, the equivalent of renting a bigger apartment than you need. You may choose to do so, but that doesn't make it a smart move financially.”

Unfortunately though, Cheapskate also makes a key math error in calculating the return on his over the years: “When I constructed a very basic cash-flow model for our home-buying history-selling price minus purchase price, renovations and repairs — it showed a roughly 3.5% annualized return on investment, from 1991 through the summer of last year.”

[Read more…]

Investing in a Real Estate Attorney

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When looking to invest in real estate everyone is looking for a good deal. Whether you are looking for land to purchase and raise a family or looking to flip real estate and make a profit, you will want an attorney that understands all the ins and outs of real estate. The last thing you want is to put in time and effort believing you are getting a great deal just to find out you have been deceived.

The greatest benefit in hiring a real estate attorney is having them review everything before you sign on the dotted line. They are trained professionals who read complicated contracts every day. The terminology may be confusing to you and I, but having the attorney there going over every line of the contract can save you from signing a document you may regret.

In choosing a real estate attorney there are three factors that I believe are most imperative:

First, make sure the attorney is experienced and has proper credentials. If the lawyer has no experience they may not know exactly what wording needs to be in the contract. Yes, they have had more schooling than you or I, but they still lack practical application.

Second, make sure the attorney has a good attitude. If they appear as if they do not want to be working with you, you probably do not want to be working with them. People who do not enjoy their job are less likely to perform at a high rate than those who do enjoy their job.

Finally, be sure to find a real estate attorney that has a set fee. Costs can quickly rise when using an attorney. Be sure to clearly understand the attorney’s fee schedule before hiring them.

Remember, when investing in real estate for whatever the reason; also invest wisely in a real estate attorney.

False Housing Bottom

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Everyone is awaiting the miracle signal of a housing bottom. False media-hyped-market-predictions are certain to play an important role in each of our lives. Listed below are a few of the recent indicators that present opportunities for newscasters to call a market improvement or decline.

  1. May annualized sales pace of home resales expected by NAR are 4.8 million, down 33% from our 2005 peak.
  2. Annualized new home sales expected for 2009 are 360,000, down 72% from our 2005 peak.
  3. Depending on your location, average mean home prices are down by 5% to 38% from the 2005/2006 peaks. May 2008 to May 2009 has the worst statistic with a decline of 14.9% on average.
  4. Commerce Department reported a sales drop of 0.6 percent in new home sales in May.
  5. Sales of existing home sales rose by 2.4 % from April to May 2009. This represents the third monthly increase this year.
  6. The number of unsold homes inventory fell 3.5% in May. This means there is a 9.6 month supply of property at the current sales pace. Normal market is 6 months or fewer, however the 3.5% improvement shows signs of market turnaround.
  7. The worst hit markets are showing inventory improvements. For instance, California has market supply of inventory for average priced homes at a 6 month level. These levels signify a market bottom.

Enough of statistics, the numbers confuse the best economists, let alone you. The bottom line is that real estate has market cycles. What goes up, has its time to go down, and then to stabilize. For those of you who enjoy analogies, we are in the 9th inning of this market downturn. Our next game is market stabilization (usually a 3 year time period). This means prices are somewhat flat while demand and supply equalize.

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Going Broke with Real Estate Education

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You've heard it all before: “YOU can become rich with real estate!” “Live the life you want with real estate!” “Come to my seminar on how to make money from real estate!”

It seems that when you're interested in real estate investing, you find yourself inundated by large font titles with glaring colors promising you the sun, moon and stars if you take their seminar (a bargain at $2,999), or buy their inspirational CDs (a deal at $199), or purchase their motivational DVD and book combo (practically giving them away for only $99).

When the eager investor signs up, the “guru” delivers speeches and media that are long on fantasy and short on reality. Many of these people prey on greed, pure and simple. They capture the attention of wanna-be investors who want to believe that the path to riches is easy. In reality real estate investing is paved with long, hard work — at least in the beginning.

It's certainly true that real estate investing can improve your finances and diversify your portfolio. It is also true that there are many people who are quietly building their wealth as a result of careful investing in real estate. The fact is, most of these people worked hard, gave up many luxuries and invested wisely instead of falling for claims of easy money.

What the “gurus” will do is emphasize the life you “could” have and gloss over the work real estate investing takes. They describe themselves with as many adjectives as possible instead of actually giving you verifiable information as to their competence. Often these gurus do not have first-hand knowledge of the different methods of investing. Therefore the challenges and problems common to investing are glossed over because they simply do not have the answers. They don't make money from your success. They make money when you buy their product.

[Read more…]

Grow Your Real Estate Business With Independent Contractors

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Seven Reasons You Want to Use Independent Contractors To Grow Your Business

There are dozens, maybe hundreds, of strategies that we've used successfully over the years to save our clients taxes. One such strategy is to use Independent Contractors to build your business. I'm going to cut right to chase here and just jump into this.

Reason #1: It's easier to ramp up your business

You can contract with Independent Contractors (ICs) for short term, month-to-month work or just by project. You don't have to worry about training them or providing tools for them to work with.

There is an assumption that they can hit the ground running. If they can't, the worst case is you've tried it out for only 30 days. You didn't have to invest time in training them and providing salary & benefits during this time. They either can perform, or not. If they don't, they're gone.

Reason #2: It's easier to change the business model if you need to change quickly

If your real estate investing business goes down, it's a lot easier to stop using an IC than it is letting an employee go. Besides the emotional issues of letting go an employee who depends on you completely for their income, there are also legal and benefit issues. You might be forced to cover the employees under the new COBRA laws. Your unemployment rates will go up. [Read more…]

How to Keep a Positive Perspective in a Negative Market

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I am sure you've heard the expression, “Attitude is everything.”  This is very true. Right now, it's simply your attitude and mentality that will give you the edge over others who are trying to invest in real estate in this highly volatile market.

You've undoubtedly heard the importance of thinking positive and having the right attitude.  Most people are intelligent enough to know that this statement is true.  Some people reading this will argue that a positive attitude doesn't always work.  Well, maybe not, but I know one thing for sure – negative thinking and a negative attitude NEVER works!  So your only choice and your only chance for success in this market are to pick the positive things in life and maintain a positive attitude at all times.

I once read a fortune cookie that said, “An optimist is someone who tells you to cheer up when things are going his way”.  I know that if you are reading this article, times may be difficult and you need serious answers to your burning questions such as, “How do I profit in a slow market?”  There are many answers to this question, but first I need to impart to you some relative perspective.

A History Lesson on Real Estate Cycles

About every ten to twelve years, as an average, real estate values tend to double in most major metropolitan areas.  For example, in the 1920's, the original colonial homes sold for just under $2,500 in Long Island, New York.  Since then, real estate prices have doubled almost eight times over the last 80 years.  That averages out to a 100% increase approximately every ten years.  An interesting note to this is that about every ten to twelve years, real estate values must correct before they enter their next “doubling cycle”.    [Read more…]

Asset Protection for Real Estate Investors

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During the early years of my real estate investing I ran my business as a sole proprietor because I was confused about asset protection. All the books and expensive courses only added to the confusion, and the subject of asset protection only became more frustrating for me.

Luckily, I survived with only minimal damage, but there comes a point when it is time to assess the best legal structure to use for real estate investing. This becomes increasingly important as your net worth grows.

Consider this scenario. You are sued for an accidental injury that occurred on one of your properties where you held title in your name personally. You are sued for $2,000,000.Your insurance only covers $1,000,000. That's a very bad day.

The biggest mistake you can make in real estate is to hold title on your property in your own personal name. Title to property is public record. Anyone can look up what you own, determine its market value, and deduct what you owe to determine what they can attempt to sue you for. It's like painting a bulls-eye on your back for prying eyes such as attorneys, creditors and even your tenants.

So what entity provides you the best asset protection? How do you limit your liability exposure? [Read more…]

New IRS Red Flag – Mortgage Interest

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The IRS has begun targeting individuals with larger mortgage interest deductions in an effort to increase their tax revenues. They are currently sending out audit notices to DC residents as part of their test, but will quickly expand to the rest of the country once their audit systems are in place. If you're a real estate investor you need to be aware of this and plan accordingly.

You must meet three criteria in order to legally take the mortgage interest deductions:

  • You can only deduct the mortgage interest on debt up to $1,000,000. This includes your personal and second residence combined.
  • You can claim an additional $100,000 for a second loan or HELOC. (This is completely disallowed for AMT taxpayers.)
  • You can only deduct the original amount of your indebtedness. In other words, once you pay down your loan your deduction does down and stays down. Even if you refinance, you can only claim the original (lower) amount of your loan before refinancing. This is one item that most people forget or don’t know about.

The IRS may strike gold here. They will want to see where you spent the money from your refinances or new HELOC loans. It would be wise to show that the money was used for home improvements or business purposes.

With the economy in disarray and the federal government hungry for additional tax revenues, it’s more important than ever for you to be on top of the real estate tax law changes. Remember that a good tax advisor can help you achieve your real estate investing goals sooner by avoiding the pitfalls along the way.

New Investment Condos – 30 Month Lease-Back with Positive Cash-Flow

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We just announced our latest real estate investment opportunity located in Ocean Springs, Mississippi.

Predicted by CNN Money to average 5% annual appreciation for the next 5 years. Forbes rated the Go Zone market as one of the Top 3 areas to invest, and Realtor.com rated the Mississippi gulf coast as the number one appreciating market of 2008.

This investment opportunity features a unique 30-month lease-back program that covers 100% of your mortgage payment, property taxes, homeowner association fees, management fees, maintenance costs, and utilities!

We also have several lending options available including some private financing options with 90% to 100% fininacing.

The investment is also Go Zone qualified for the 50% “bonus depreciation” provided by the IRS.

Visit our website and download the FREE Property Info-Pak for complete details, or just click here: Ocean Springs Investment Condos.

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Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
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