Investing In Real Estate In A Recession

It can be scary to invest in anything during a recession. We all carry visions of the great depression and bread lines and people selling apples. The idea of putting your money into anything other than your mattress can be frightening for some. However, real estate should never be looked upon as an ordinary investment. Real estate is one of the few investments that we actually use and need. Everyone needs a place to live and call home. And real estate has systematically and quantifiably proven to have risen in value over the decades Mortgage rates have not been as low as they are today since the 1960s. This is an ideal time to invest in real estate and take advantage of those low interest rates as well as the attractively low prices on property in many areas around the country. Because there are so many more properties on the market than there are buyers, in other words supply outstrips demand, the price for property in most areas has fallen considerably. On top of that, there are people who have overextended themselves in the early part of the century and are now finding themselves facing foreclosure. Now Is The Time To Buy And Buy Cheap. Do not feel intimidated by a real estate agent who tells you that you are going to “insult” someone if you offer a low price for their property. The real estate agent wants you to spend as much as possible because their fiduciary responsibility is with the seller, and they get a commission based on the sales price. Use your head and take a look at the market. When you invest in real estate during a recession, consider the following: Why Are They Selling? If you’re purchasing from a builder/developer than why they are selling becomes less important. But if purchasing directly from the owner in a private sale, you can find out by simply asking the seller or your agent. If the property is in a state of disrepair, chances are that there are financial problems. Don’t be afraid to offer a significant amount less. If the owner is buying another home and needs to close on the first one soon, again don’t be afraid to offer less than their asking price. How Long Has The Property Been On The Market? A few years ago, a home that was on the market for several months was either priced too high or there was something significantly wrong with the property. Today, properties stay on the market for 90 days or more in many parts of the country due to the prevailing market conditions. Avoid making a lowball offer on a property that is fresh on the market unless you know it is going into foreclosure or just about to become foreclosed upon. However, feel free to make low offers on properties that have been on the market for a month or more. Those that have been on the market for over a year are owned by people who are willing to ride out the storm and will most likely not be sold for a low price. Is The Property In Foreclosure? If the property is bank owned, you should be prepared to offer a lot less than the asking price. Don’t allow a real estate agent to sway you when it comes to making an offer. If they say, “I do not want to present such a low offer,” tell them that you are prepared to find someone else who will. There are many real estate agents looking for a sale, especially in the today’s market. If the property is in foreclosure, offer at least 20 percent below the lender’s asking price. Contrary to what you may have heard, this is the best time to buy a property. Always do your homework and don’t be afraid to invest in real estate during a recession.

http://www.noradarealestate.com/Real-Estate-Articles/Index.asp

Posted by Clayton Posted in: Recession, Investing No Comments » April 2008

Latest Indianapolis Real Estate Market Conditions

Stats were just released late this past week.  In the Indianapolis area, annual sales of homes have increased from this time last year from 26,000 to 27,000.  Also, overall prices have remained unchanged from this time last year.  On the surface that may not seem great, but considering the mortgage market and foreclosure issues, those numbers are phenomenal.  We are seeing houses selling very quickly now.  Some of that has to do with the time of year, but the mortgage market is starting to settle down and buyers are gaining some confidence.  Buyers are still looking for deals, but those “great” deals are going to start drying up sooner rather than later.  My appraisal business has jumped slightly and we have seen more activity on the realty side of the business.  Those pent up buyers I have been talking about are coming out to smell the roses.  The market still has some rebounding left to do, but Indy is already picking up some steam and is poised for a nice rebound.  Are you ready?

-B
- www.investorschoiceindy.com 

Posted by Clayton Posted in: Investors Choice, Indianapolis Real Estate Market, Investment Property Rehab, Mortgages & Lending, Indiana Real Estate, Real Estate No Comments » March 2008

What is that Investors Choice Indy company, anyway…???

I wanted to send out a quick thank you to everyone that visits this site.  Word is spreading quickly about what we do.  Bringing awareness to the community about our projects and idea is wonderful.  I continue to hear stories about title companies, mortgage companies, real estate agents, and other industry professionals talking about what we do.  Even though they may not contribute (although they really should to get more involved), their presence is helping get our name out to the public.  Thank you again to everyone for helping.  Your help will come back to help you in the way of having like minded people share experiences and knowledge.  I hope more of you “lurkers” start to write in to ask questions and give opinions about our topics.  Everyone would love to hear from you. 

-B
IC Indy Guru

Posted by Clayton Posted in: Investors Choice, Investment Property Rehab, Mortgages & Lending, Indiana Real Estate, Real Estate No Comments » March 2008

1031 Exchange - Like Property Exchange - Indianapolis Investment Real Estate

Tax Savvy Investing - 1031 Tax-Deferred Exchanges by David Whisnant

This article is meant to be an introduction on the topic of performing tax-deferred exchanges. There are a number of legal hoops that the IRS makes you jump through to complete a tax-deferred exchange, but they are actually not that complicated once you study up on them a bit. A tax deferred exchange allows us to sell a piece of investment (i.e. rental), trade or business property, buy a new property with the gain or profit from the sale, and not owe taxes on the sale immediately. If you eventually sell the new piece of property, you would owe taxes at that time. Generally, all gains and losses on sales of real estate are taxable, but an exception lies where the property sold is traded or exchanged for “like-kind” property. The new property is seen as a continuation of the original investment, so taxes are not due at the time of the sale. Many people view tax deferred exchanges as being for huge corporations, or only for professional investors. I believe that everyone should take advantage of these where they can. Strategy — purchase a rental home below market value, rent it for a year, sell it, and buy two rental properties with your gain. Note that if you do this too many times, the IRS may take the view that you are not a long term investor, and disallow such exchanges. When you get ready to do a tax-deferred exchange, you will need the services of a qualified CPA or Attorney. This is a basic introduction only, and you should always get professional advice from someone who has all the details on your deal, since so much liability is at stake. In my course I list the company that I use for these real estate exchanges. They are a national company and can help you out wherever you are in the country. I have used them for several deferred exchanges, and they have been an excellent resource and extremely competent. Let’s look at how one of these deals would work. Assume that you own a rental property that has gone up in value. You’d like to sell this property and then reinvest the proceeds into some other rental real estate. You can avoid the tax bill if you can find suitable property to exchange for. The difficulty of the tax deferred exchange is that the property you are going to purchase must be identified within a certain amount of time, and it must be closed within a certain amount of time after it is identified. Unfortunately, no extensions are possible. Identifying Property You must identify property in a written document signed by you, and delivered to the party assisting you with the exchange (cannot be related to you!) on or before 45 days from the date you sold the original rental property. There is a growing body of support for identification of properties, and closing of new properties before the original property is sold. This is somewhat controversial and outside the scope of this discussion. Technical Note: You can identify more than one property as the replacement property. However, the maximum number of replacement properties that you may identify without regard to fair market value is three properties. You may identify any number of properties provided that the total value of these properties is not more than 200% of the value of the original property you are selling. Note that you don’t have to close on all the properties you identify. You can name several if you’re not sure what will close, or not close, but you have to observe the rules in this technical note in terms of the value of properties you identify. If at the end of the identification period you have identified more properties than you are allowed, you are generally treated as if no property was identified. This means that you pay taxes! Time Limits For Completing the Exchange If you have correctly complied with the identification phase of the exchange, you have up to 180 days to complete an exchange, but the period may be shorter. Specifically, property will not be treated as like kind property if it is received more than 180 days after the date you transferred the property you are relinquishing, or after the due date of your return (including extensions) for the year in which you made the transfer. For multiple property transfers, the 45 day identification period and the 180 day exchange period are determined by the earliest date a property is transferred. Avoid Boot! Boot is defined as any money or any type of property of unlike kind (example, a car received as part of down-payment). You will be taxed on this boot regardless of whether or not you carry out the exchange correctly. You will want your exchange company, or attorney to examine your transaction closely to make sure you don’t receive anything that could count as boot. Special rules apply for exchanging property with assumed mortgages. Summary The tax-deferred exchange is a great way to maximize your wealth. By keeping your investments growing without immediately paying taxes, you can do wonders for your net-worth. You will need to search out a good intermediary. I am happy to provide the name of mine for our members. This may seem like a dry subject, but it is important to understand when you begin to accumulate some rental properties. Remember that this article is to provide basic information only. If you are planning on doing a tax deferred exchange, you really need to speak with a professional that handles these transactions on a regular basis. Information here is subject to change by IRS regulations or statute, so be sure to use current information provided by your accountant or other professional when planning a strategy involving tax deferred exchanges. Visit the discussion in our forum at http://www.investorschoiceindy.com/forum/general-discussion/defering-capital-gain-tax-t217/

Posted by Clayton Posted in: Taxation No Comments » February 2008

When to say when.. How much Investment Property Rehab is enough??

An important component in pricing and marketing a property will be in looking at the market and your competition (ie. listing and sale comparables).  Most of the homes that I am putting out as investment deals are in areas that having one bathroom is common.  I would agree that having a second bathroom in a three or four bedroom house would be ideal.  However, it is not an “expected” feature in these areas.  Also, the expense is almost always probititive.  Appraisers like myself use the term “incurable”, meaning that the cost to make an improvement (ie. bathroom) costs more than the value you would get of the improvement.  As an example, it might cost $5,000 to add a bathroom.  If the market will only allow for an increase of value at $2,500 due to that bathroom addition, then the improvement is considered to be incurable.  If you were to spend the same $5,000, however, and receive at least $5,000 of market value, then the improvement would be considered curable.  In most cases, room additions will be incurable.  Having said that, I just went out to a property this past weekend with 4 bedrooms and only one bathroom.  The house has a perfect area for a second full bathroom.  The cost will be nominal because it will only involve a slight conversion of space.  In that situation, adding the bathroom is going to become part of the rehab plan.  Not every property will see that type of renovation though.  In fact, most of them won’t due to cost and more importantly the market expectations in those particular areas.

Join in the conversation at the Investors Choice Indy Forum

 Til Next Time…

Posted by Clayton Posted in: Investment Property Rehab No Comments » January 2008

U.S. mortgage rates fall - Rate on 30-year fixed’s at lowest in over two years: Freddie Mac

Reading a recent article on www.MARKETWATCH.com, what we have all been talking about is the truth.  With all the media hype on the gloom and doom of todays Real Estate Market, or The Mortgage Crisis, today marks another positive look into the future for Real Estate Investors.  While the National Association of Realtors is showing a slowdown in Pending home sales, the mortgage industry is reflecting with a new incentive to home buyers, with the lowest interest rate for a 30 year fixed in over two years.  Freddie Mac.

“Because average mortgage rates have come down more than a quarter of a percentage point in the past two weeks, there has been a pickup in refinance activity as borrowers take advantage of the lower rates,” Nothaft said.

“For the first week of 2008, the Mortgage Bankers Association reported an increase in the refinance share of mortgage applications and the pace of overall applications, both at the highest levels in four weeks.”

article credit - MarketWatch

In addition, the Mortgage applications rose 32.2% last week

I invite everyone to goto our forum at WWW.INVESTORSCHOICEINDY.COM/FORUM to discuss their thoughts on this and other aspects of the Real Estate Marking in Indianapolis and other parts of the United States

-C

Posted by Clayton Posted in: Real Estate No Comments » January 2008

Mortgage Market - What’s going on…???

As many of you know, lenders are changing their rules and lending criteria.  The foreclosures and mortgage defaults have definitely set them on edge.  They are now understanding where they went wrong and how to avoid those issues in the future.  Many of the loan programs that were once available are near history including stated income, stated asset and no money down loans.  For the most part that is a good thing, but it will hurt some of those borrower’s that relied on those programs such as self-employed individuals like myself.  Right now no one knows where the dust will settle exactly; however, I submit the following: Lenders are hurting because they had no stops as to the type of lending they would do.  It was a long running joke that if a borrower had a pulse and could sign their name (not spell it correctly ), anyone could get a loan.  Surprisingly, a limited number of those borrowers have defaulted.  Current numbers are showing that less than 10% of all mortgages have defaulted.  That is still a large number, but far less than what the media would have you believe.  My thoughts are this, lenders are in the business to loan money.  They have made some bad decisions in the recent past.  Many of them have sunk as a result, but the fact remains that our country, the State of Indiana and the City of Indianapolis is filled with buyers that are ready, willing and able to buy homes.  Lenders know this and will continue to make loans.  Sure the lending criteria will be tighter and all borrowers will be scrutinized moreso than in the past, but lenders are in the business to loan money.  As long as there are buyers that want to buy a house, there will be lenders that will make a loan if those borrowers meet the higher lending requirements.  Considering that the high risk type loans make up around 8% of the entire mortgage market, I don’t see a need to worry.  In fact, it was recently announced that the mortgage mainstream is back.  Lenders have been forced to go back to sound underwriting and pricing practices.  They have increased their lending criteria by making high risk loans (100% LTV, Stated Income) to only the most creditworthy borrowers.  Not to fear for the rest of you though.  Fannie Mae and Freddie Mac (our government dollars at work) are exercising expanded authority they received in the fall to buy non-conventional loans for their own portfolios and Congress is breathing new life into FHA reforms.  The current credit crunch could all but be decimated if the proposed higher loan limits and more flexible downpayment requirements for FHA are enacted.  Overall, the housing market is the back bone of our economy.  All government officials, lenders and banks know that fact.  They want to get the stream flowing again more than anyone and I suspect it will be sooner than later. 

Stay tuned. 

Posted by Clayton Posted in: Mortgages & Lending No Comments » January 2008

Come Join our Meeting - Where Real Estate Investors HELP Real Estate Investors

As many of you know, Investor’s Choice and this site is designed for real estate investors, by real estate investors.  Over the past six months, we have seen our group grow and add new members from all over the world.  That is so exciting to me and our team.  I am really looking forward to what 2008 has to bring.  There are many new things coming up this year in the way of lending, market rebound and taxation that will affect everyone.  For the savy and well informed investor, those changes can potentially pay huge dividends.

The IC group has meetings every month to talk about various investing issues and typically include a featured guest speaker.  Normally those meetings are open only to Investor’s Choice “Preferred Investors” that have paid their membership dues.  However, I want to kick off 2008 with a bang.  As such, I want to personally invite any “non-members” to our January meeting that will take place next Wednesday the 9th.  The meeting is held in the Greenwood area and starts at 7pm.  This meeting will be our Kickoff to ‘08.  We are going to set plans and goals for each of our members and get prepared for the New Year.  In addition, we will have a guest speaker to talk about investment planning, both short and long term.  If you have an interest in attending this meeting, please reply to this message or e-mail me direct at brian@investorschoiceindy.com and I will give you more information.  I look forward to seeing everyone next week!  ’08 is going to ROCK!!!

To Our Success,

Brian
IC Indy Guru

Posted by Clayton Posted in: 2008 Meetings No Comments » January 2008

Stay Hungry.. Stay Foolish.. -Steve Jobs

I am honored to be with you today at your commencement from one of the finest universities in the world. I never graduated from college. Truth be told, this is the closest I’ve ever gotten to a college graduation. Today I want to tell you three stories from my life. That’s it. No big deal. Just three stories.

The first story is about connecting the dots.

I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?

It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl.

So my parents, who were on a waiting list, got a call in the middle of the night asking: “We have an unexpected baby boy; do you want him?” They said: “Of course.” My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents’ savings were being spent on my college tuition.

After six months, I couldn’t see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. 

It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn’t interest me, and begin dropping in on the ones that looked interesting.

It wasn’t all romantic. I didn’t have a dorm room, so I slept on the floor in friends’ rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on. Let me give you one example:

Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn’t have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, its likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do.

Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

My second story is about love and loss.

I was lucky — I found what I loved to do early in life. Woz and I started Apple in my parents garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation — the Macintosh — a year earlier, and I had just turned 30. 

And then I got fired.

How can you get fired from a company you started? Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.

I really didn’t know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down - that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the valley. But something slowly began to dawn on me — I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.

During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT, I returned to Apple, and the technology we developed at NeXT is at the heart of Apple’s current renaissance. And Laurene and I have a wonderful family together.

I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.

My third story is about death.

When I was 17, I read a quote that went something like: “If you live each day as if it was your last, someday you’ll most certainly be right.” It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?” And whenever the answer has been “No” for too many days in a row, I know I need to change something.

Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn’t even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor’s code for prepare to die. It means to try to tell your kids everything you thought you’d have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I’m fine now.

This was the closest I’ve been to facing death, and I hope its the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:

No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960’s, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: “Stay Hungry. Stay Foolish.” It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

Thank you all very much.

-Steve Jobs

Posted by Clayton Posted in: Inspiration No Comments » November 2007

Investor’s Choice Meeting - November 5th, 2007

Investor’s Choice includes a private “club” with investors from the Indianapolis area.  We meet once a month on the first Monday of the month.  Currently we meet in the Greenwood area at 7pm.  We discuss various real estate investments and talk collectively about ideas.  Mostly we are a support group with a small number of members.  That close, personalized touch is something we pride ourselves on.  If you are in the Indianapolis area and would like to attend, the November meeting is open at no cost.  November’s meeting will be on the 5th at 7pm and will include a licensed CPA as our featured guest.  Normally these meetings are closed to non-IC members, but November is the month for giving, so we plan to be festive and give part of our service.  It gives you a chance to get to know us and us to know you.  If you are interested, please e-mail me direct at info@investorschoiceindy.com.  I will copy you to the meeting announcement next week.  That announcement will include directions and contact info.  We look forward to hearing from you.

Brian

Posted by Clayton Posted in: Real Estate No Comments » October 2007

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