All Forum Posts by: Leo Kingston

Owning a home in the United States is becoming less and less common. In fact, it’s hit a 20-yr low at the as of the end of 2014. According to a recent Wall Street Journal article:

“…63.9% of U.S. households owned their homes in the fourth quarter, a level last recorded in the third quarter of 1994. The homeownership rate hasn’t fallen below that level since 1988.”

Of course statistics can be a bit deceiving, and I need to say that the percentage of home-ownership in the US hit a highpoint in 2004 (11 years ago) at 69%. So, it’s not a gigantic drop, but it’s still significant.

This topic makes me think about the big debate over global warming…. Are there truly insidious reasons for the apparent trends in world weather patterns, or are there simply cycles in the weather over time, and we’re entering a new cycle now?

Well, the same kind of question could be asked about home-ownership in the US. Are there social and financial reasons for the drop, which is about 5% measured over the last 11 years, or it is just symptomatic of the inevitable cycles in real estate value and ownership?

I am certainly no expert on either global warming or the home ownership trends in the US, but it doesn’t take an expert to point out one pretty obvious factor that may be affecting home-ownership in the US right now.

That factor is the elephant in the room, and it is called DEBT. Personal debt and national debt. Both of these factors enter in to the picture whenever home-buyers step up and get serious about making an offer on a home. They are most likely going to finance it, so their personal debt load sharply influences the decision of potential lenders.

That’s clear, of course. However, in the background, national debt is influencing interest rates and the ease with which money is flowing in the economy, including mortgage money, whether buyers are considering it or not.

Possibly most relevant in terms of debt is student loans. First-time home-buyers may be strapped with not one but two student loan packages (husband’s and wife’s), totaling close to or more than the value of the home they want to buy. This situation is not uncommon, and it’s unprecedented in US history.

The grandmas and grandpas of most first-time home-buyers probably didn’t have an opportunity to go to college. And their moms and dads may very well have gone to college, but they didn’t come out with the same sky-high debt load. They worked to pay for part of their college tuition, and they borrowed judiciously. The same can be said for many college students today, but the cost of tuition, books and living expenses is MUCH higher now.

Student loan debt and easy-money credit card debt are putting a damper on home-ownership in the US now, in my opinion.

But, whatever the reason, it opens the door for investors to acquire and lease higher-quality homes than ever before. I like that part, for sure.

Two Views of the American Dream – To Rent or To Own A Home?

The stately brick home with white shutters and a matching white picket fence fantasy home is still with us, but some people are reconsidering the notion that owning a home is part of the American Dream.

Personally, owning MANY homes as a real estate investor has built my business and my lifestyle, so I wouldn’t walk away from home ownership myself.

But some people are doing exactly that. The upside of owning a home is not as great as the downside in their opinions. And these people span the age range from 19 to 90. It’s not specifically generational now, and that’s what interests me.

Since first time home buyers are notorious for overlooking many basic costs of home ownership, often focusing exclusively on accumulating a down payment and then making monthly payments that include property taxes and insurance, I was fascinated to read that buyers in their 20s and 30s are becoming quite savvy as they consider renting vs buying their home.

Millennials who have been renting for a while generally experience some sticker shock when they start doing the math on home ownership, because the square footage they can afford to buy is usually smaller than what they’ve been renting.

The New York Times recently published a post with the provocative title, “Is It Better To Rent Or Buy?” and the authors included a calculator to make the comparison easier. Built into the calculation are the following factors for buying:

*Home price

*How long do you plan to stay?

*What are your mortgage details?

*What does the future hold?

*Taxes

*Closing costs

*Maintenance and fees

While it sounds good on the screen (since we don’t use paper much anymore…) I can’t fathom any calculator having an algorithm for “What does the future hold?” I’m sorry, but nobody knows the answer to that, even if we think we know our own plans, we usually don’t. And we certainly don’t know the whims of the economy or the housing market.

If I had hesitated to purchase hundreds of homes as an investor because a calculator told me it would be better to rent than to buy, I might not be as well-off today. It was precisely the risk factor and the sixth-sense for a good deal I developed that allowed me to prosper. There’s just no way a calculator can factor in all the variables.

Yes, there are valid reasons for renting instead of buying a home. In fact, it can definitely be the best choice when maintaining a yard or bearing the expense of interior maintenance is not practical. Paying rent can be a sound financial decision under many circumstances.

I’m just saying that an online calculator is not the best way to decide whether to rent or to buy. It takes good, old-fashioned common sense and some wise advice from people who’ve lived through the ups and downs in any real estate market, along with your own financial considerations.

In early June 2015, Black Knight Financial Services (BKFS) released data showing a sad and surprising trend in the number of delinquent homeowners facing foreclosure.

In some metro areas in particular, over 60% of homeowners who are 90 or more days late making their mortgage payments have already been through one or more government or lender home retention programs.

While the data is based on approximately 952K delinquent mortgage loans all over the United States, the highest percentages of assisted homeowners still facing foreclosure are located in Washington, D.C., Maryland, Texas, Georgia and Connecticut, although a combined total of 28% of all delinquent homeowners are located in only 3 states – New York, New Jersey and Florida.

Real estate investors may not be surprised to read that more than half the homeowners who sought and received help to stay in their homes and get back on their feet financially in some areas are still struggling.

Personally, I’m not surprised because many families simply bought more house than they were ever going to be able to pay for, no matter how highly they were rated by mortgage calculators when they originally applied for a mortgage.

Many homeowners chose to buy too much house and they are suffering as a result.

The majority of people who go through weight-loss programs and actually lose weight seem to gain weight again after completing the program. They choose to participate in a program with special diet meals, and it may work well while they are eating those restrictive meals, but unless they consciously change their eating habits they are mostly likely going to gain weight again. It’s that simple.

Well, the way I see it, homeowners given the advantage of mortgage modifications and special payment plans with lower monthly payments are like dieters. Unless they made lifestyle changes and cut other monthly expenses, assistance in making their mortgage payments is not going to solve their problem. It just gives them more money to spend elsewhere
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However, the Federal government doesn’t see the problem the way I see it.

The Home Affordable Modification Program (HAMP) is 6 years old now, and it’s been extended again. The fact that the overall number of delinquent home loans and the number of foreclosures in process is down since HAMP began in 2009 tends to distract from the reality that both foreclosures and delinquencies are still more than double the number before the sub-prime mortgage crisis became apparent, starting in 2007.

Now there are 12 separate loan programs for homeowners listed on MakingHomeAffordable.gov. It’s a whole menu of options for homeowners with different circumstances, since HAMP is only available for mortgage loans originating before January 1, 2009.

But the real estate market has improved in most markets over the last 6 years, so banks and mortgage lenders are tending to utilize short sales and allow foreclosures to proceed instead of making concessions on behalf of delinquent homeowners. If a home is likely to sell in a reasonable time period, a sale seems to be the best solution for all concerned.

Most people who have participated in residential real estate transactions as buyers or sellers remember experiencing last-minute changes at the closing table. Real estate agents, mortgage lenders, title companies and escrow companies are familiar with harried changes to the HUD-1 closing statement and to mortgage documents, which changes often lead to aggravating delays and additional costs.

As of August 1, 2015 our closing table dramas are scheduled to come to an end.

The Real Estate Settlement Procedures Act (RESPA), Federal legislation enacted in 1974 to protect consumers from unscrupulous and confusing real estate practices, is changing in several significant ways. The changes are all designed to protect the consumer, the buyer and the seller in each real estate transaction.

And while everyone generally agrees that consumer protection is crucial, some of the changes may prove to be challenging, both to real estate professionals and to the consumers they serve.

Before getting into the specifics, here are two basic reasons the new RESPA requirements may become challenging: 1) the need for more specific consumer disclosures, and 2) the need for those disclosures to be presented to the consumer in final form 3 days prior to closing.

Conceptually, specific disclosures, as well as strict timelines for completion by professionals and presentation to consumers, both sound like excellent ideas. Under ideal circumstances they will undoubtedly be a big improvement over last-minute changes to a HUD-1 and to mortgage documents at the closing table.

But there’s a catch – when certain changes to closing documents become necessary after August 1, 2015 another 3-day waiting period kicks-in.

Closings that drag on for several hours are one thing, but closings delayed by 3 days, and possibly another 3 days, and yet another 3 days… that’s another thing entirely.

Delayed closings invariably lead to more calculation and documentation changes, which lead to more delayed closings, etc.

To understand how the new law changes the buying and selling of real estate all over America, take a look at the new disclosure forms. Essentially, the Good Faith Estimate is combined with the Truth in Lending (TIL) disclosure, now called the "Loan Estimate," and the HUD-1 settlement statement is combined with the final TIL, now called the "Closing Disclosure."

The National Association of Realtors© is advising its members to expect typical closings to begin taking about 2 weeks longer than usual. If 30 days has been the norm, agents and brokers should expect 45 days, and that means they should tell their buyers and sellers the same thing.

Will consumers eagerly embrace the notion that closings on typical home sales will now take an average of 45 to 60 days? Fortunately, the longer time frame covers the very real possibility of one or more 3-day waiting periods, although it’s certainly possible that none will be required. It’s just not too likely.

Only time will tell how the new RESPA rules actually work in the interest of consumer protection, but you can sell us your house now and avoid the wait.

I agree with all those who said starting construction prior to closing is a bad idea. All it takes is one personal experience (which many of us have had) and you'll be saying the same thing when somebody asks you this same question. Might as well learn from others, don't you think?

It also depends on the quality of the properties you are buying.

You're asking a good question, Sam, and others are giving good responses. If you stand back and imagine that you are an investor who is looking to put his cash to work, think about what you would want. Would you be interested in talking to a guy with no properties to talk about? If you have found properties for other investors and they are happy with you, that is a good start. If not, then you are simply going to have to find deals so that you have something to share with the investors you contact. Eventually, if you are able to put investors into some viable deals, they may let you know what they are looking for and that will really get you off and running. Good luck!

Chad, I don't know how long you've been investing in single family homes and flipping them, but you are describing a very common problem we have all faced for several years now. This is nothing new. Sorry you had to learn the hard way, but it looks like you may have a rental house on your hands until some time goes by and you can justify your $99,500. Or, ideally, you can look for a cash buyer and avoid the mortgage issue entirely.

I believe the wholesaler's first mistake was bringing along a contractor to provide estimates for a potential buyer. Buyers have to get their own contractors and rely on their people, not my people. I am not selling them a sure thing, not ever. Nobody is selling me a sure thing either. This business is all about risk and he or she who assumes the most risk will, hopefully, win. Trying to take the risk out of the process is not ever going to work.

Bala, I'm with Andy on this one. In reality, none of what when on previously really matters unless it left a cloud on title. Otherwise, you are simply looking at a property and determining how much you can afford to pay in order to make a profit. It's that simple.