"Stolen" article on Flipping Houses

So I stole this article from an email I received. With all the TV shows on Flipping, you'd think it was SO easy! In all honesty, I still have clients who are flipping but this trend has come and gone (Caveat--the 'simple' picks have come and gone by now; what's left are rough properties and many are in rough areas). In essence, the tone of the article (in my opinion) is 'be careful'. The pros are doing it still and having mixed success. Do you want to risk your entire nest egg as a 'newbie'? Perhaps not... Read on!

SEE BELOW FOR HEADINGS/TEXT OF EMAIL RECEIVED...

What's the Deal with Flipped Homes?
Americans love their home improvement and design shows. With entire channels dedicated to DIY, home decor and design, and everything related to U.S. real estate, we love the possibilities that lie within the real estate market in America. One popular aspect of many shows and publications is home or house flipping. We hear a lot about flipping homes, but what does that really mean? Is it feasible for everyone? Are there risks? Should you buy a flipped home, and what questions should you ask if your property search lands on a potentially flipped property?


What is Flipping?
Flipping is a predominately U.S. term used to describe purchasing a property with the intent of quickly reselling it for profit. Most of the time, properties that are purchased with the intent to flip are those that are distressed, abandoned, or otherwise in need of repairs that make the property less desirable to other potential buyers. Flipping has become increasingly popular throughout the U.S. in the last decade, and many people have become successful real estate flippers with the vast and varied real estate markets throughout the United States.


Can Anyone Flip a Property?
Many programs on television make house flipping look easily attainable to anyone and everyone. The fact remains that flipping a property is risky business that requires a large amount of work, experience, funding (preferably cash), excellent credit and a good understanding and almost intuitive knowledge of the real estate market. If you're interested in flipping properties, the best way to get started is by talking to someone who has experience and has had success in flipping real estate. There are many things to know about flipping real estate that should be addressed before the idea is even entertained.


What are the Risks of Flipping a Home?
There are risks with any kind of real estate investment, but inexperienced flippers can make a number of mistakes. There are a number of costs that come with flipping a property, and new flippers can make the mistake of not having enough money to cover the entire project – from the acquisition of the property, to the renovations, taxes, utilities and more. Another risk of flipping properties is time, or lack of time. Finding the right property can take months, and once you own the property there is a time commitment to renovations, commuting, inspections, and ultimately the marketing and selling of the property.

Other risks that new flippers run into are not having enough knowledge about the real estate market and failing to purchase the right property for a flip; a lack of skills when it comes to working on the property and putting in the sweat equity (hard work) required to get it up to market standards; and ultimately lacking patience when it comes to the entire project as a whole.


Should I Buy a Flipped Home?
Often, flipped homes have mostly cosmetic changes done in order to attract buyers and ultimately get the property sold. You might fall in love with fresh paint and brand new appliances, and generally speaking, most flipped homes attract many buyers because they have a smaller initial to-do list than other properties on the market. If you're looking at a property that could be a flip, be sure to ask these questions: What is the home's sale history? If the home recently sold for much less than its current asking price, it's possible it is a flip. Does the outside of the home match what's inside? If the exterior of the home is older, and the interior looks brand new, it's very possible someone is trying to flip the property. Information is your best friend when it comes to a flipped home, so getting the most information up front will help guide you toward pursuing the property or not.

If you believe you're looking at a flipped home, consider asking the seller what changes have been made to the property, and check to see if any permits were issued for the work. Also, some buyers might be blinded by all the new interior cosmetic updates that they forget about the bones and foundation of the home. Regardless of whether a home is old or new, always hire an experienced and licensed inspector to check over the home to make sure you're getting the most for your money when it comes to buying a property.

When to shop for a cheaper closing...

This article some great points but a few things to point out--title insurance rates are set by the title insurance company here in GA; we use Old Republic Title as they offer solid service/reliability and great common-sense underwriting (and fair fees too!). For the record, most title companies in GA do not offer re-issue rates so ignore that part of the story.

One other comment that needs to be 'tweaked' is about closing on the last day of the month. YES you'd save the most in interest if you close the last day of the month or close to it (call me and I will explain). BUT how much is your time worth? Or better yet-how much is your STRESS level worth? I can guarantee that MOST closing issues are due to rushed deals such as on month-end or for FRIDAY closings. If it were me (after 20 years doing closings) I'd prefer to close the week of the 25th or so on a Wednesday. Why Wednesday? People think they have to close on Friday so they can move the next day. If there is a problem with your closing (perhaps your wire didn't come in time) then you won't fund. If you have no money, you're not getting keys! Back when I closed for a National builder, if you don't have money, you don't get keys (actually the best policy). Did they care about that $150/hour moving company idling in the cul-de-sac? NO. If you close on Wednesday, you STILL move on Friday and you also have 2 bonus days to 'fix' problems like missing wires, walk-through issues, etc.

Finally, DO check into the firm where you're 'told' to close. Are they customer-service driven like us? If not, why are you closing there??? Give us a call today and schedule YOUR closing with US!

Want to shorten the length of your mortgage? Avoid Bi-Weekly payment plans!

Some of my standard closing table banter is chatting about paying down your mortgage WITHOUT using a bi-weekly payment plan. Why not? Well, as the article suggests, you typically are charged for that 'service' and at the end of the day you won't save as much interest over the life of the loan. In simple terms, most bi-weekly offers I've ever seen typically quote 5.5 to 6.5 years interest savings. If you paid ONE extra payment per year***, you'd save greater than SEVEN years worth of interest. Why choose a bi-weekly payment plan at all?

Click HERE for the article!

***As an example, if your principal and interest payment is $1200 per year, you would pay one extra payment towards principal per year OR pay an extra $100 monthly (principal/interest payment, divided by 12)

Mortgage Changes for 2014

I received the following info from a realtor friend's email newsletter; thought I'd share... Happy 2014! Bo

Mortgage Changes to Know in 2014


The New Year is almost here, and with it comes a bevy of legal and regulatory changes, especially for the mortgage industry. To help potential homebuyers understand how the changes will affect their mortgage processes, Don Frommeyer, CRMS, President of NAMB (The Association of Mortgage Professionals), outlines some of the regulations set to start in January 2014.

“Since 2009, the housing market has been working to create standards and regulations that minimize the risk of another mortgage industry fiasco,” says Frommeyer. “The ability-to-repay mandate is a perfect example of this and it exemplifies how mortgage professionals are taking extra caution with every customer.”

Upcoming mortgage industry changes include:

- Ability-to-Repay Mandate: The CFPB designed this regulation to set a gold-standard for lending to ensure each and every borrower is a qualified borrower. Lenders will follow a set of guidelines to establish a consumer’s income, assets and obligations before deeming them eligible. The CFPB rules establish a standard for what the government considers a “qualified mortgage.”

- Decrease in FHA Loan Limit: The Federal Housing Administration (FHA) announced that beginning January 1, 2014, mortgages will be limited to $625,000, down from $729,750. Homebuyers looking to obtain a larger loan will have to apply for a jumbo loan, which will most likely come with a higher down payment. “For many areas of the country this change won’t be a huge issue as average home prices fall below the established limit. However, borrowers in metropolitan areas with higher average housing prices may face challenges when applying for mortgages as the 20 percent down payment associated with jumbo loans will be an enormous increase from a traditional loan’s 3.5 percent down payment,” notes Frommeyer.

- Caps on Loan Origination Fees: January 10, 2014 brings a rule for the Qualified Mortgage that points and fees on mortgages cannot exceed 3%.

- Tighter Regulations for Self-Employed: As the rules to create a QM (qualified-mortgage) take effect, people without a W-2 will face difficulty when they apply for loans. It’s more of a task for individuals to prove their debt-to-income ratio without the proper documentation, even if they have a high net-worth and perfect credit. The income is calculated bringing into play the customer write offs to reduce taxable income.

For more information, visit www.namb.org

Deed is DONE!

The last time I wrote about deeds I discussed the different forms of deeds, such as Quit-Claim Deeds, Security Deeds and Warranty Deeds. To read “Doing the Deed” click HERE. This time I’m going to discuss several issues relating to deeds.

If you own a property by yourself, it’s solely in your name. That’s a simple concept; not much to understand about that. If you own a piece of property with someone else, the specific language in that deed is very important. Let’s say a property was conveyed to Sonny and Cher (note to anyone under 40: Google them). Yep, no question about it--Sonny and Cher own their property; that’s simple enough. BUT, like all my political rants about unintended consequences, if it’s just spelled out that Sonny and Cher are the owners (with no other special language) there could be issues lurking down the road. If you’re curious, that type of deed would be called “Tenants in Common”. Put that thought on hold and let’s try another scenario.

I won’t bore you with statutes and history but years ago the Georgia legislature created another deed concept called “Joint Tenants with Right of Survivorship”. That meant that if Sonny and Cher took title as Joint Tenants, they more or less owned the entire property together—however, if either one of them passed away, the title to the entire tract would pass to the other immediately as an operation of law.

The distinction for these two deed formats is specific to the language. As noted, the Joint Tenants deed passes title immediately upon the death of one of the Joint Tenants. Contrast that with Tenants in Common—picture a big line drawn through the property. With Tenants in Common each “Tenant” owns their “half”. So if Sonny died, Cher still owns her half but now Sonny’s estate owns the other half. This may or may not be a big deal—if Sonny has a will giving everything to Cher, then she gets the entire property just like the Joint Tenants deed. The difference? With the Joint Tenants deed, Cher would have received the property ‘automatically’ upon Sonny’s death. With the Tenants in Common, Cher has to Probate the Will through the Court system or Administer the estate if there was no will. Either process involving the court will cost money and time—something that Cher may not have depending on her situation. If she received the property through the Joint Tenancy deed, she can do what she needs immediately, no waiting!
Take a look at the deed to your own house. TYPICALLY attorneys will default to creating a Joint Tenants With Rights of Survivorship for closing OR they will give you the option. If that’s your intent, great, the JTWROS deed is a useful tool. Take a look at your parents’ deed—was it an older deed that just has both of their names (Tenants in Common) OR was it just in ONE of their names? Again, through the court system, a surviving spouse will ‘eventually’ be able to receive the property BUT why put up barriers that involve time and expense?

What if you own a vacation house with another family? If by mistake the lawyers used a JTWROS deed, then if Family Dad 1 dies then Family Dad 2 would own the complete property. Most likely that won’t be an issue (e.g. will Family Dad 2 effectively kick out the heirs of Family Dad 1? He could!) but we attorneys hear all sorts of horror stories (and even within families—it’s weird how money can induce craziness into families).

What about a ‘blended’ family? Take the Brady Bunch. If Mr. Brady wanted only HIS sons to receive his interest in his property, then Tenants in Common may be the way to go for him. That way Mrs. Brady would get her share and the sons would get theirs. However, there could be a LOT of issues that could come up so you really need to think things through and PLAN with both the deed and a well-crafted Will.

One final issue to discuss is Divorce. So Sonny and Cher hit a rough patch and decide to go their own way. In the divorce decree (the ‘road map’ to the divorce, more or less a contract telling what must happen) it says Sonny will deed the house to Cher, so he does. Now Cher owns the house, right? Here’s the classic “What if” situation—what if Sonny and Cher had a loan? Well, Cher may own the house, but BOTH Sonny and Cher are tied together through the loan. Actually, look at it this way—Sonny and Cher’s CREDIT is tied together through the loan. If Sonny wants to buy his own place, he may not be able to do so until Cher pays off that loan or refinances that loan ‘solo’ (e.g. Sonny is no longer on a loan tied to the old house). Again, a simple concept, but I get calls or emails all the time relating to this. More “what if’s” for you—now let’s say Cher stops paying the mortgage; obviously her credit is trashed and she may lose the house. BUT guess whose credit is also trashed? Sonny’s, because he is still on the loan! He may never know this until he is turned down for a Home Depot credit card or something much more important like his own loan or even a job!

On a similar note, what if Cher got the house and the divorce decree actually states clearly that Cher must refinance or sell the house to get Sonny’s interest released? That is a great idea and ANY divorce attorney should make sure that is in the decree (with time limits!). BUT (there’s always a but, right??)—what if the house is ‘upside down’ and cannot be sold or refinanced? These are serious concerns with no easy answer. I just want to point out some of these issues so that you can properly plan for the future should this event happen to you.

The moral of the story? You should get thee to the file cabinet, safety deposit box or simply contact your closing attorney and find out how you hold title to your property (and again, ask your parents, grandparents or kids, etc.). At a minimum it’s best to have both spouses on title and ‘in general’ it’s best to have a Joint Tenant With Rights of Survivorship Deed. As noted, everyone’s situation is different (I didn’t even touch on tax liabilities, which I’m not really qualified to do!) so start by looking at your deed and then consult your estate planning attorney, CPA and real estate attorney to do what’s right for you!
As always, if you find some generic deed online, you’ll probably get what you pay for (meanwhile, your home is merely your most important asset but what’s $50, eh?). Likewise, I saw a will creator program at my local warehouse club for $45. All I can say is this—you may be dead, but do you want to burden your family with a ‘what if’ that comes to life due to some wacky software glitch? Let me know how I can help, either a quick review of your deed and/or revision as well as helping to craft a simple will for you that’s in line with your current situation. I’d love to help serve you! Thanks as always for reading, take care! Bo