All Forum Posts by: Account Closed

In California, property is reassessed whenever there is a qualifying change in ownership. In this case, there were two qualifying changes in ownership. The first was the sale from your friend to the buyer and the second was the transfer from the buyer back to your friend or the foreclosure that returned title of the property to him.

The question that should be addressed is the new assessed value at the time your friend re-acquired title. Was the property valued at a stated price, or was it valued based on comparable sales? If your friend has evidence the property was overvalued for the transfer, he should file an appeal of the base year value. There are specific appeal deadlines that apply, so your friend should reseach these as they apply to his situation.

Finally, your friend can apply for a temporary reduction in assessed value if the value of the property has declined since he reacquired it. This is an annual review process. He should be able to get the necessary information and application from the Assessor's website for the County in which the property is located.

Financial modeling by so-called professionals got us the S&L crisis and now the MBS mess.

Anyone that has actively been in this business for a couple of years knows better than to rely on a financial model with a series of assumptions. Depending on the age, location and condition of the property, 45 to 50 percent expenses (including vacancy and annualized capital improvements) is a darn good rule of thumb.

Tax advantages are helpful, but don't equal cash flow in importance. Buying properties for the tax writeoff (even if you are eligible to take the write-off annually) is a sure-fire way to lose a lot of money.

If it looks good on paper, but you are not deducting a total of 45 to 50 percent from your SGI, one or more of your assumptions is probably not accurate. Common mistakes are underestimating vacancy and collection loss because the area is currently in demand or underestimating repairs, maintenance and replacements because the property is new or nearly new. Remember, you are holding this property for some time, and you will experience these expenses.

I'm curious how many properties the spreadsheet jockies in this thread own and personally manage? I have seen a lot of engineers and finance professionals buy property based on spreadsheets and demographic data. They hand off the property to a management company and then wonder why they are losing money every month when the model projected positive cash flow.

It sounds like you are facing a long-term reduction in income because of your husband's health issues. You are probably not benefiting from any of the tax write-offs at this point, and the house needs $20,000 in strucural repairs and a $5,000 new roof at the minimum. You already have two foreclosures on your record and a third won't make things much worse.

Based on what you have said, in your shoes I would cut my losses. I would contact the lender and provide them the information so you can at least try to negotiate a short sale. If they don't want to cooperate, work out the best foreclosure deal you can with them.

However, make sure you can secure a rental before you make a final decision. With your credit history and lack of current income, you will likely encounter difficulty in renting a decent property. Many landlords will not consider renting to you, especially if the rental market in your area is strong.

If your husband can get back to work, you will have opportunities to make up your losses in the future. The good news is that once we get past the housing mess, there will be many people in your situation. Lenders will eventually see the profits in this population, and the lending guidelines will probably eventually be modified to accommodate this group.

Nikola:

You mentioned there were a lot of foreclosures in your complex. What are they selling for? Is anything else in the complex selling? Are you basing your value estimate on what is actually selling?

If foreclosures and short sales are the only properties selling in your complex, you need to look at their selling prices to estimate the value of your property. In areas where there are a lot of foreclosures and short sales, it is difficult to price your property much higher.

I own a number of single family homes (over 20) in the greater Phoenix market. I also have over 25 years experience analyzing income and expense statements for commercial and multi-family properties. Although I'm not willing to disclose specific numbers, I think my experience qualifies me to comment on this controversy.

Most of my rents are over $1,000. Taxes have averaged about one percent of value over 12 years, although with the downturn in the market and despite the Maricopa County Assessor's proactive effort to reduce assessed values, they were a significantly higher percentage of value for 2008. All of my properties are single family residences, and they range in age from 5 to 45 years. The vast majority are three and four bedrooms, with a couple of 2 bedrooms.

I can tell you that over this sample and over 12 years, the expenses, including the vacancy and collection loss and the capital improvements, have run around 50 percent of scheduled gross. However, most of the properties are managed, so about 7 percent goes to management. If I had managed everything myself, the expenses over the 12 years would have been a lower percentage of the SGI.

In addition, expenses have risen faster than rents (MikeOH is the only person I can recall who has pointed out this dirty little secret of real estate investing) so I expect to be over 50 percent for the next few years until rents start to rise again. Twelve years ago, in the halcyon, pre-California invasion days, the expenses were somewhat lower as a percentage of SGI.

In my experience, the biggest factor that should be considered in the expense analysis of a single family home is the rent differences among various parts of the country. A furnace costs the same pretty much anywhere. So do roofs and water heaters. Taxes can also vary widely as has been pointed out. There will be variations in the overall expense percentage to apply and an investor should carefully analyze the numbers before buying anything.. The 50 percent rule is an excellent starting point and should be used by a new investor to temper his or her enthusiasm and to question any sales pitch or pro forma operating expense analysis provided by the seller.

With regard to Rich Weese's comments, in the Phoenix market there is a big trade-off for buying new/newer homes over older, well-located homes. Newer homes are found on the outskirts of the area. As lots of inexperienced investors have found out, rents are lower, vacancy is much higher, HOA's are mandatory and expensive, and tax rates are higher because there is no infrastructure. Those folks have lost over 60 percent of the value of their properties in many cases. Even at current prices, I'm not convinced these properties would cash flow at current rents, given current vacancy and operating expenses. When looking at new and newer homes, an investor should analyze the trade-offs in their specific market.

I don't have an axe to grind or any reason to distort the numbers. It sounds like Nationwidepi specializes in marketing investments to folks with good jobs who want to diversify their investments away from the stock market. These folks do not want management intensive properties, and are willing to sacrifice current cash flow for long term appreciation. If he is buying and recommending new properties in strong rental areas, his current expenses may well be lower than 50 percent. Long term, however, the expenses will trend much higher. MikeOH, on the other hand, is running a rental business that must cash flow to support him and his family. His expenses will differ, but they will be very tightly controlled. If he experiences 50 percent expenses, then an investor that wants to follow his business model should listen up.

I won't ask either person to post their numbers because I'm not willing to do so. I will just wish them both (and everyone else) a merry Christmas and better investment performance in 2009.

If you have a lot of equity and good credit, you should qualify for a 30 year conforming fixed in the high 4's with 0 to 1 point. On Tuesday, the rates were even lower. It's a no-brainer for me. Who knows what you will want to do in 5 years, and you will have a(n) historically low rate in the meantime. Call your loan broker and tell him/her what you want and ask him/her to hit the lock button when the rate and terms get to your numbers.

Dave:

As I sad in the other thread, you should call your lender and negotiate the rate on the first and take the deal on the second. Right now you might be able to get the first down to about 4.75-5.00 percent under the terms offered by your lender (market rate first with them paying most of the costs). Decide what you can live with and call the lender immediately. Ask them what their current offer is on the first. If it is not the rate you can live with, tell the lender you are willing to sign up the day the rate on the first drops to that number.

The deal on the second is a good one. If you can get the first in the 4.75 range, you will have done very well. Considering your loans are performing, your lender has been very fair with you.

The $73 figure is disingenuous at best. The cost of retiree pensions and benefits is included. Subtract that out, and the cost of the current labor force is much closer to the labor costs of foreign manufacturers operating in the United States.

GM's overseas divisions are actually profitable. It's the US side of the car manufacturing business that is grossly unprofitable. Add in the fact that a lot of GM's profits over the last few years came from financing cars and houses (think Ditech), and you can see what they need to do.

I don't have any sympathy for Chrysler or Cerberus. Cerberus took on the risk of taking the company private and packaging it for resale. The gamble did not pay off. Chrysler continues to manufacture some of the worst products in the industry. Structure a bankruptcy filing to protect the parts suppliers, and liquidate. I don't know why GM would even be interested in a merger.

With regard to all the infrastructure jobs that will supposedly be created by the new administration - do you really want Chrysler engineers designing and Chrysler assembly workers building your bridges? I didn't think so.

You want to "solve the real estate crisis" and stimulate the economy? Eliminate the capital gains tax for any single family investment property purchased in 2009 and 2010 and watch the inventory disappear.

And don't forget to extend those proposed 4 percent mortgage rates to investment properties, including refis. That will get a lot of folks out of the holes they dug themselves into and slow the foreclosure rate.

Oh, and forget about the Kiyosaki crowd. Spend your time and money at the library and at the used book store. Cash Flow Quadrant is the best of Kiyosaki's books, but it does not help you learn the fundamentals of real estate investing. Find a seasoned investor in your area to make friends with, join (or form) a legitimate real estate investment group, and read everything you can.