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

“The Billionaire Inside”

No one can deny Donald Trump’s market savy or instincts about real estate (wives are a completely different story).  There was an interesting program on CNBC last night-”The Billionaire Inside”, an hour long interview with Donald Trump.  “The Donald” covers a range of topics and he states several times that now and the next 6 months are the time to capitalize on the Buyer’s market.  Now is the time to negotiate your best deal!  Hard to argue with a multi-millionaire.

Quote for the Day:  “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

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

Watching the pulse of the Real Estate market via a REIT

For those not familiar, an REIT (Real Estate Investment Trust) is just like a stock or more specifically like a mutual fund.  REIT’s are administered by the trust fund’s manager.  That manager is responsible for selecting various real estate projects that will produce profits for the trust fund and in turn, dividends for the trust fund (stock) holders.  The various real estate projects can be mortgage companies, condo projects, large apartment complexes, commercial units, industrial parks, etc.  The trust fund makes its money by investing in those projects and sharing in the returns with the property owners.  It is more complicated than that, but that is the general overview.

Obviously, the trust fund manager’s job in making the REIT profitable is to select the best real estate investments.  In “up” economies, the pickings are large with high profits, and in “down” economies, the pickings are small with low profits.  That can be seen in the Dow Jones graph you refer to.  http://finance.google.com/finance?tkr=1&q=.REIT  Back in its heyday, mostly due in part to the availablity of mortgage money, real estate across the country was very profitable, so REIT’s were profitable and an excellent place to put your money in the stock market.  Looking at the five and ten year trends, those trust funds have been on a steady climb.  However, looking at the past year, the trend has been down but still higher in the overall picture.  Looking at the beginning of this year, the numbers were at the highest levels ever at 1,134 (an average of all REIT’s).  There had been a slow, steady decline since that high and the average finally hit rock bottom in August at 851, a 25% drop.  Since August, the trend has been back up.  As of Friday, October 19, the average for all REIT’s was 938.  That falls in line exactly with the timing of the sub-prime mortgage market fallout and the steady decline of the real estate industry as a whole.

As many surmise, those REIT managers have their “finger on the pulse” of the real estate market.  Because it is their job to make the trust fund profitable, the managers select real estate investments in the best areas.  Those investments are all across the states and in other countries as well.  The trick is to find the most profitable investments.  Each trust fund manager has their own strategy, but you can bet they are noticing the upturn in our local market as well as other markets like in Dallas, Houston, Atlanta and New Orleans.  Those markets are up, and as a result, the REIT’s numbers are rising up too.  That trend is something mortage companies are noticing as well.

The real estate market is on the rebound.  In fact, today’s Indianapolis Star included yet another article from sources stating that now is the best time to buy in the local market.  And, “Consumers who take advantage of this excellent buying climate to purchase a home will find that it is the best investment they ever made”.  Prices are at rock bottom and the only way they have to go is up.  Couple that with mortgage companies rebounding and buyers ready to jump in, and we are at the threshold of an investor’s dream market.

I did a little more REIT market research for you.  As I expected, the information available is somewhat specific, but still generic.  I tried to get a prospectus online for these funds but they were not available.  Although the information is not specific, I found it interesting that every one of the top funds have Simon Property Group in their portfolio.  Simon is based out of Indianapolis with several retail malls and strip centers throughout the midwest including several here in the Indianapolis metro area.  Simon Property Group is a huge company and tracks real estate closely.  If the REIT fund managers like Simon enough for each of those managers to pick Simon for their funds, I believe that is saying something for the local company and local real estate market.  I think it is safe to say that the REIT fund managers like what Simon is doing.  Below are the top 4 REIT funds and the percentage of holdings in each.  I got the following information from www.forbes.com.

Top Holdings for Fidelity Real Estate Investment Portfolio:
 
Starwood Hotels & Resorts Worldwide Inc (HOT)  10.45%
 
ProLogis (PLD)  9.37%
 
Simon Property Group Inc (SPG)  9.02%
 
Equity Residential (EQR)  5.76%
 
Public Storage (PSA)  5.58%
 
Holdings data through 7-31-2007.

————————————-
Top Holdings for Alpine Realty Income & Growth Fund :
 
Vornado Realty Trust (VNO)  5.33%
 
Simon Property Group Inc (SPG)  5.04%
 
Boston Properties Inc (BXP)  4.81%
 
Starwood Hotels & Resorts Worldwide Inc (HOT)  4.32%
 
iStar Financial Inc (SFI)  4.21%
 
Holdings data through 6-30-2007.

—————————————-

Top Holdings for Morgan Stanley Institutional Fund :
 
Simon Property Group Inc (SPG)  9.38%
 
Host Hotels & Resorts Inc (HMT)  7.67%
 
Equity Residential (EQR)  7.62%
 
Boston Properties Inc (BXP)  5.94%
 
Brookfield Properties Corp (BPO)  5.31%
 
Holdings data through 8-31-2007.

—————————————

Top Holdings for T. Rowe Price Real Estate Fund:
 
Simon Property Group Inc (SPG)  5.56%
 
Equity Residential (EQR)  4.01%
 
Macerich Co (MAC)  3.71%
 
General Growth Properties Inc (GGP)  3.41%
 
Host Hotels & Resorts Inc (HMT)  3.36%
 
Holdings data through 6-30-2007.

-B

Posted by Clayton Posted in: REIT No Comments » October 2007

The State & The Fed Proposals on Property Taxes & Mortgages

Many changes are on the horizon.  State and Federal lawmakers are looking to alter tax plans and ease the mortgage crisis that will affect every property owner.  These proposals are just that, proposals.  They still have to go through the legislative bodies and be signed into law.  As all things political are concerned, there will be debates and probably some changes.  However, considering this is an election year, I don’t anticipate a lot of fight from either side of the aisle in getting these proposals passed.  Property owners are hurting and the legislators are hearing from their constituents.  Something must and will be done, and it will be done sooner than later.

The State of Indiana is looking at the biggest changes that will have a direct impact on every property owner throughout the state.  Property taxes have increased on average by 50% from tax year payable 2006 to tax year payable 2007.  Many property owners saw their property tax bill increase by 100% and still other saw 200%+ increases in their tax bills.  The full impact of those increases is yet to be seen.  Mitch Daniels, Indiana’s Governor, suspended those tax bills for many counties early in the summer.  The reason being, assessed values were not correct due to faulty assessment practices.  Many properties were assessed at the wrong value and consequently, their tax bills were incorrect.  The Governor ordered those counties to reassess every property in those districts.  Once that reassessment is complete, new tax bills were to be sent out.  As a result, all property owners were required to pay the May and November 2007 property tax installments based upon the 2006 property tax bills, which did not include the 2007 increase.  As a resolution, a third bill will be mailed out and due in the Spring of 2008.  That third bill will reconcile the difference between the amount paid and the amount that should have been paid in 2007.  Are you confused?  So is practically every other resident.
To take care of that issue, Governor Daniels spoke on a live television news broadcast last night to outline sweeping changes.  Those proposed changes are as follows:
Cut property taxes - The Governor’s proposal calls for the State to take over school operating, school transportation and child welfare levies.  Not only will the move provide REAL property tax relief, it will also cut out some of the overwhelming complexity of property taxes, thereby allowing taxpayers to more easily determine who is responsible for property tax spending.  These cuts will be funded by a one-cent sales tax increase.  In addition, Mr. Daniels is proposing to enact a State Constitutional Amendment to permanently set the rate for property taxes.  The set rates would be 1% for homeowners, 2% for rental property, and 3% for business property.  Those percentage rates are based upon the fair market value for those properties.  Those changes will amount to an average of approximately 33% reduction in everyone’s property tax bill.
Fix the assessment system - Through a variety of structural changes, the assessment system will be fixed.  Governor Daniels’ proposal includes two of those structural changes - the elimination of township assessors and the appointment of county assessors.  This will create fewer and larger assessment jurisdictions, leading to equitable, fair market value assessments.  This will also remove the political pressure from assessors, who are charged with ministerial, not policy-making duties.

Those changes are monumental and have long been needed.  Of course we would all prefer to not pay property taxes at all, but that is something that will not happen.  Governor Daniels even mentioned last night that he looked into eliminating property taxes, but that it was something that could not be done.
The Federal Government is taking on the issue of the mortgage problems.  Bill H.R. 3648, Mortgage Forgiveness Debt Relief, includes four changes to the current law:
First, the permanent exclusion from gross income of discharged home mortgage indebtedness.  The bill would provide for a permanent exclusion for discharges of up to two million dollars of indebtedness (on or after January 1, 2007), which is secured by a principal residence.  Instead of including this amount as income, the basis of the individual’s principal residence would be reduced by the amount excluded from income under this bill.  In other words, if an individual loses their house due to foreclosure, the lender will give the borrower a 1099 that includes the amount of debt that was forgiven as a result of the foreclosure.  The borrower would then have to claim that amount as income on their 1040 and pay taxes on that income.  This bill would eliminate that tax.
Second, long-term extension of the deduction for mortgage insurance.  The bill extends the deduction for mortgage insurance for seven years (through the end of 2014).  The bill would provide that payments will quality for this deduction whenever they are paid so long as the contract is entered into after 2006 and before 2015.
Third, modification of the qualifications tests for cooperative housing corporations.  The bill would modify the requirements for qualifying for the special rules available to cooperative housing corporations.  Under current law, a coop housing corporation must meet several requirements, including a requirement that 80 percent or more of the coop housing corporation is earned from the corporation’s tenant-stockholders.  The bill would provide two alternatives to this 80 percent rule (ie. one based on square footage and another based on coop expenditures).  These two alternatives will make it easier to quality as a cooperative housing corporation.
Lastly, modification of exclusion of gain on the sale of a principal residence.  The bill amends the current law exclusion of up to $250,000 for a single person ($500,000 if married filing jointly) of a gain realized on the sale or exchange of a principal residence.  Under the bill, if a taxpayer moves their principal residence to a second home, the taxpayer will only be able to utilize this exclusion to the extent that it relates to the period of time when the homes was first used as a principal residence.
As mentioned above, these are only proposals and are not law.  Overall, I believe these changes to be a step in the right direction.  Time will tell what the actual impact will be.  I am keeping my eyes and ears open.  What do you think?

-B

Lets Discuss this on the forum!

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

Indianapolis Investment Property - Market Analysis

Many of you have been asking for this info and I wanted to back up what I have been telling you about the market.  I pulled properties that have sold within the past 3 months (since the mortgage crunch) that are in the areas that I am suggesting to concentrate on for purchasing.  Based upon MLS data, and in the specific areas (So Bro - Southern Broad Ripple and the Tarkington area), the data I have is this:

Southern Broad Ripple:
48 sold properties, 23 of those were non-REO properties and 25 of them were REO type sales.  That is an even split and something I have noted for quite a while.  The even better news is this, the average DOM (days on market) is at an average of 105 days.  Out of the 23 non-REO properties, 11 of them sold in less than 90 days and 9 of them sold in less than 60 days.  I also did a cross reference check of currently active properties and the numbers aligned almost perfectly in regard to the numbler of REO (50-50) and non-REO properties and the average DOM (110 days).  Bottom line, these properties are selling, even in the mortgage downturn.  Also, the lowest non-REO sale was $59,500 and the highest $143,000.  Obviously that is a wide range, but shows the low end to be in line with what I have put out.

Tarkington area (South of 42nd Street):
24 sold properties, 7 of those were non-REO properties and 17 of them were REO type sales.  This market has a historically low turnover due to the owners holding onto their properties.  Being close to Butler University really keeps the owners remain as owners, so the data is more skewed and harder to read.  Regardless, the news is just as refreshing.  The average DOM is at an average of 111 days.  The active properties, however, show an even better sign, as the average DOM is even less at 93 DOM.  The lowest non-REO listing was at $64,900 and the highest was $195,000.  This market is hot just like So Bro.

I hope that helps illustrate that the values are there and that these properties are still selling.  Imagine what the market will look like in 3 months when your first rehabbed properties hit the market.  I can’t stress enough…get in now!!
-B

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

Are you ready for the flood of buyers??!!

Pent up, demand is ready to burst.  Across the country, nearly 4 million jobs have been added and wages have increased by 7 percent.  The Dow Jones is at the highest level in history and the aggregate national income is at $1.35 trillion.  Put that on top of the recently slowed market, and you cannot help but to expect a surge in the real estate market.  Buyers are bursting at the seams to buy a new home.  The mortgage market is realigning and ready to ease up on their most recent restrictions.  Once those hurdles are cleared, the buyers will be flooding the market.

In addition, the number of households is down by two-thirds  as of the first quarter, which indicates that people are holding back due to uncertainty about the future.  Those opinions are changing as they see more reports about a rebound and notice prices remaining stable.  As an appraiser, I have seen my business decline marginally over the past several months only to see it climb in the past two months.  That bucks usual trends that show the months of August and September are traditionally slower due to kids going back to school.  Families that would normally have moved during the summer months, wouldn’t because of uncertainty or couldn’t because of the mortgage realignment.  They are ready to go now.

As further proof of the mortgage market gaining strength, mortgage applications for home purchases have been rising nearly 10 percent since May.  This data, from the Mortgage Bankers Association, centers on “A” paper loans (good credit), so that increase indicates a rise in quality.  Quite a few mortgage companies shut down, while even more have lost money.  Those that remain have cut their losses and need to make more loans.  They are putting new programs to cater to a larger segment of the mortgage market.

Finally, the rate cuts.  The Fed is expected to cut the interest rates again by the early part of 2008.  That spells even more reason for buyers to come out of hiding.

Many of you have been concerned about buying investment properties.  Every bit of news that is being published gives more support to jumping in now while the fire is hot.  Considering that it will take a few months to acquire, rehab and remarket the property, now is the time to buy in time for the buyers to purchase your property.

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

Want to be a landlord, huh??

“Could you throw out a single mother with three children on Christmas Day?”  How cruel does that question sound?  When I started in the real estate investment business many years ago, an experienced investor friend of mine asked if I had the ability and resolve to be a good landlord.  I didn’t quite understand what he was getting at.  After all, how hard could it be?  My naivety kicked in as a thought to myself, “I lived in an apartment once and it went off without a hitch.”  My friend pursued further and asked the question above.  He told me to think long and hard about my answer.  Giving him the benefit of the doubt, I contemplated, “Could I do that?”  It seemed so harsh, so mean.  At the time and given that situation I didn’t believe I could make that decision.  Little did I know that fate would deal me a hand and I would face that nearly exact scenario.

Over the course of my investment history I have heard every story in the book from tenants as to why they can’t make their lease payment.  From, “I only get paid every other week and will be a little late this month.” to “I can get you part of the rent next week, just hold out a bit longer.”  Those excuses still resound in my head.  In the beginning, I believed every one of them to my own financial peril.  Over time and after hearing excuse after excuse, I became numb to the tenant’s words.  As much as I wanted to be understanding of their plight, I realized that I had a business to run.  I couldn’t meet my own financial obligations with excuses.  My creditors didn’t care if my tenants weren’t paying the rent.  They simply wanted me to make my payments.

After going through the eviction process with a single mother several years ago, I thought to myself that there had to be a better way to handle the situation.  Tenants don’t want the humiliation of being evicted or the hassle of having to move, any more than landlords like to toss their tenants to the curb.  That single mother didn’t want to transplant her children and I didn’t want to have to put them out on the street.  That situation hit me hard and I knew there had to be a better way to help my tenants while I managed my own financial concerns.

When I stared out in this business, I foolishly trusted everyone.  I didn’t check the credit worthiness of my tenants; I didn’t call previous landlords; and I didn’t ask about the tenants needs.  I simply placed an ad in the paper, waited for a prospective tenant to call, we signed a lease agreement and the tenant moved in.  For the most part I had marginal success with that process, but it would catch up with me.  It wasn’t until later that I started to understand what the rental business required and what I needed to do to become a smart landlord.  It took a tenant named “Lisa”, a single mother with two children, to help me learn how I could win in a winless situation.

Start with the basics, screen your tenants.  That seems like such an easy solution, but I can’t tell you how many times I have talked with other landlords that don’t do that simple task.  I am not the one to condemn since I didn’t make any attempt to research my tenants.  With the advent of the internet, it is so easy to do a quick check of tenants.  There are companies that can be hired to verify a tenant’s credit, check their criminal background history and discover if they have written any bad checks.  The cost for that can be put back onto the tenant as an application fee.  In fact, I tell any prospective tenants that I intend to complete a credit and background check and that they are required to pay the cost.  That usually weeds out quite a few “undesirable” tenants.  A simple background check can make or break you as a successful landlord.  However, that process doesn’t cover you for all situations.  Honest and credit worthy people can run into trouble and become bad tenants quickly.

Get to know your tenants from the beginning.  Every tenant has a financial and family situation that you should know.  I am not suggesting that you should delve into your tenant’s entire family history, nor do I recommend that you become best friends with your tenants.  However, having a snap shot of your tenant’s “situation” up front can help turn a potentially bad tenant into a great, long-term tenant.

If I had only asked Lisa about her situation, I could have learned up front that she was recently divorced.  She was living off of a part time job and the child support payments provided by her estranged husband.  I didn’t learn of her plight until she missed her rent payment three months into the lease.  Learning from my earlier mistakes, I was diligent enough to run a credit check on her but I didn’t know about her recent family “problem”.  However, if I had asked the questions, I could have worked with her to come up with a different rental solution from the beginning.  Lisa honestly thought she could make the lease payments.  I discovered too late that the wages from her part time job barely covered the rent, and to add insult to injury, her ex-husband was traditionally late with the child support checks.  At the time, all I cared about was getting her out of my property and finding a new tenant.  That wouldn’t serve either of us as I would discover.

That brings me to my last bit of advice; work with your tenants to amicably work toward a resolution.  Communication can be your final salvation in keeping your investment profitable.  Bad things happen to good people.  People lose their job; they get divorced; they have a medical situation; life happens.  It is unfortunate, but a part of living.  Keep in contact with your tenants.  Not just to collect rent, but to learn of problems with your property and to stay on good terms with your tenants.  If your tenants feel that you genuinely care about their life, they will typically do the right thing in regard to your property and pay the rent.

Concluding the story of my situation with Lisa, she had quickly gotten in over her head and ran into some financial trouble at the beginning of December.  Being a businessman, I had started the process of evicting her through the court system.  I knew that I would have to clean and prepare the property; advertise the property; and start the process all over again during the holiday season.  All of that would add to my expenses since I most likely wouldn’t find a new tenant until late January.  It was not going to be pretty any way it went.  Instead, I decided to visit my tenant.  We talked for about one and a half hours about each of our concerns and needs.  In the end we negotiated a mutually beneficial alternative to eviction.  She remained in the property for December, rent free.  During that time, she cleaned the property and got it ready for a second tenant.  I was on the verge of placing an ad in the paper for a new occupant when Lisa called to say that she found a new tenant for me.  An acquaintance of Lisa needed a space for a short period of time and was willing to fulfill the remaining term of her original lease.  I signed a new lease with Lisa and put her into another property I owned.  We had decreased her rent payment by $125 per month and I gave her the first month at half price which was enough to get her back on her feet.  Once she learned that I cared about her situation and was willing to help her out, she did all that she could assist me and get herself into a better situation.  I can’t tell you how good I felt about resolving that issue.  Lisa was a tenant for the next two years and excepting only one additional late payment (which I knew about before hand due to our communications), she was a wonderful tenant.  We turned a potentially bad situation into a good one.

I had helped a tenant out of a bad situation and helped myself out of a potential financial loss.  I learned so much from that situation.  In future dealings I used that experience with other tenants that had trouble paying.  Don’t get me wrong, I have had some tenants that I just couldn’t work with, but overall I would consider my landlord experience a good one and best of all, I sleep sound at night. All tenants won’t be like Lisa, but it is an example of what can happen by being a smart landlord.

Leasing property and being a landlord is not for everyone.  With correct information and better tenant selection from back ground checks; making smart decisions for you and the tenant at the beginning; and maintaining a little patience in dealing with a potentially bad tenant, you can be a smart landlord and see great financial benefits.

And so the question for you is out there, “Could you throw out a single mother with three children on Christmas Day?”  Think long and hard on it.  Be honest with yourself.  Could you do it?  Hopefully you will never be placed in that situation; however, if you are a landlord long enough, you be placed in the position of having to make tough decisions.  It is inevitable.  It is not pleasant, but a necessary evil in this business.  No one likes to be the bad guy, so why not look for solutions to avoid having to make that decision.  To this day I have never forgotten that “advice”.  It was a good test of whether or not I would make a smart investor and an even better landlord.

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

Indianapolis Bouncing Back - Additional Proof

As a follow up to the post I made a few days back about the Indianapolis housing market, CNN Money and Yahoo published an article that ranks Indianapolis as the 2nd market in the Nation that is ready for a market rebound.  The article reitterates what I said the other night, time to buy low and sell high.  Don’t wait until next year to get in on this market…do it now!!!  This is a wave that every other locale can only dream of.

Ten Cities Ready To Bounce Back
By Paul Kaihla, CNNMoney.com
 

The horror show of America’s residential real estate market just keeps getting scarier, what with the sub-prime mortgage crisis threatening to slash demand for homes while the inventory of unsold properties continues to pile up. It’s enough to send any prudent investor fleeing to the relative sanity of, say, the stock market.

Don’t. Instead, get ready for the bounce-back. The oldest rule of investing dictates that you buy low and sell high. Real-estate buyers aren’t at the gate, however, because most local markets have yet to hit bottom. In fact, most cities won’t do so for another year.

But Business 2.0, working with Moody’s Economy.com, has unearthed 10 major metropolitan areas that are bucking the national housing trend. By the beginning of next year, these markets should be coming back to life — and in our exclusive rankings, we’ve projected the house-price appreciation these cities will enjoy during 2008 and 2009. The gains may seem modest — they range from about 4 to 7 percent — but remember, in the midst of the current housing meltdown, any gain at all constitutes a minor miracle.

What our 10 cities have in common is that they’re relatively affordable. They missed out on the housing bubble, yet they still enjoy steady employment and income growth. Not surprisingly, five of the 10 are state capitals with hefty public payrolls. Even more telling, with the exception of the three Texas metros ( Austin, Dallas, and Houston), the big national builders didn’t make significant incursions into these markets.

“These cities didn’t draw in speculators or investment the way the coastal markets did,. says Celia Chen, the Economy.com economist who crunched our numbers.” “House prices in these places weren’t untethered from the underlying fundamentals.” These underappreciated — but soon-to appreciate — housing markets offer real opportunities to the savvy investor.

Indianapolis

Projected median sales prices for single-family homes:
Q1 2008: $122,940
Q4 2009: $130,630
Growth rate: 6.3 percent

Indianapolis is riding a few trends that are bringing about an early recovery in its real estate market. While Indiana’s capital city did join in the housing boom this decade, prices didn’t reach the stratosphere. Indianapolis still suffered through the downturn, though: Building permits for new homes dropped 30 percent from their peak in 2005. But the housing market hit bottom earlier here than in most parts of the country — during the last quarter of 2006. Now, with the local economy poised to grow faster than the national average over the next two years, house prices are projected to post a respectable gain.

Indianapolis’s low unemployment rate has made it a destination for people fleeing cities like Fort Wayne, Gary, and Terre Haute. It’s also relatively cushioned from slowdowns in the national economy because more than a third of its workforce is employed in stable sectors like professional and business services, health care, education, and government. Those white-collar corps also helps boost Indianapolis’s median household income to $50,500 a year. Given that you can buy a four-bedroom, 2,000-square-foot home for less than $200,000, this makes the place the nation’s most affordable major metro.

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

Huge Influx of Foreclosures in Marion County

Last year (2006) saw a spike in the number of foreclosures around the Indianapolis area with a record high of 8,874 properties sold at the sheriff sale. That record is expected to be broken this year as the number of properties sold at the sheriff sale to date (September 2007) is at 6,700. The September sale included a total of 721 properties. Don’t start licking your chops yet investors. More than half of those properties were withdrawn by the lenders or homeowners due to a settlement or the past due balances were paid. Even more were taken out of the sale due to the foreclosure filings by the homeowners. Once a foreclosure is filed by the homeowner, the property is immediately pulled from the sheriff sale. After all was said and done, only 21 properties were left for the picking by investors. By count, approximately 60 investors were present to bid on those properties. Out of the 21 available properties, most were bought back by the foreclosing lender. Those lenders send out a representative to bid up the property in an effort to protect their interest in the property and recoup some of their losses. According to the clerk, only 3.5 percent of the properties put into the sheriff sale were actually bought by investors. It is estimated that in past years, 8 percent of all properties in the sheriff sale were bought by investors. The drop is attributed to those lenders protecting their investment. Typically those lenders are more willing to pay a higher price as they have insurance protection through the PMI (private mortgage insurance) companies.

Don’t get discouraged by this news! The properties that are bought by the lenders are then re-listed by a Broad Listing Broker. These local real estate agents list the properties for sale and are available to us. That is where I find a lot of our Investor’s Choice deals. Through my years of writing appraisals, I have worked with several of those BLB’s and have good relationships with them. In fact, I write appraisal reports for those brokers to help price the bank owned/REO properties. There are a few positives from that deal. First, we are not competing with 60 investors and lender representatives at a sheriff sale to buy the property. Secondly, we receive a special warranty deed from the lender when we purchase directly from them. When we purchase a property at a sheriff sale, we only receive a sheriff’s deed which does not provide a lot of protection from other lien holders trying to collect money. Lastly, I am helping to price those homes and have a “leg up” on the public about those properties. Take advantage of the resources that you have available. Not many investors have the wide range of benefits that are accessible to you, especially at the price you pay.

Lets discuss this more on the Investor’s Choice Indy Forum at:
Foreclosures In Marion County, Indiana

-B

Posted by Brian Lee Posted in: Indiana Real Estate No Comments » October 2007

Indianapolis Housing on the Rebound

Indianapolis has long been used as a test market for many companies such as fast food restaurants, snack food manufacturers and a variety of other businesses. Anybody remember the McDLT© and Olestra©? The reason those businesses use us as “guinea pigs” is the fact that Indiana is known as a “vanilla state“. We typically aren’t on the cutting edge of anything like the east and west coast states, and we are considered by those marketers to be representative of the average American people and aren’t subject to wild opinions.

Likewise, our real estate market follows along with that “vanilla state” theory. One thing my 12 years of real estate experience has taught me is that the Indianapolis housing market is stable and has been that way for many years. We didn’t see the massive price increases like the residents of Florida or California saw two and three years ago. However, we haven’t seen the massive price drops and the “bursting” of the “housing bubble” that those states are experiencing. On average, the Metropolitan Indianapolis area has seen a very modest two to five percent increase in house prices for at least the past 8 years. That is a general percentage as some areas have remained stagnant such as sections of Marion County, while other areas such as Zionsville and Noblesville have seen higher percentages. Ironically, the Zionsville area has very recently seen a larger drop in housing prices.

As long as Indiana remains a vanilla state, we won’t see the rapid price increases or price decreases in the housing market. Knowing that information, it came as no surprise to me to see that Indianapolis placed second in Business 2.0 magazine’s October ranking of the Top 10 cities poised for a housing turnaround. Dallas/Fort Worth was ranked number one. New Orleans, Atlanta, and Montgomery Alabama followed Indianapolis, with Memphis, Mobile, Austin, Houston and St. Louis rounding out the top ten. The magazine forecasts that Indianapolis will see a 5.6 percent spike in housing prices by 2009. Low unemployment, an influx of white collar jobs and ease of finding reasonable housing were all cited as reasons for the market rebound. The magazine went on to state that Indianapolis is “the nation’s most affordable major metro” area.

That percentage spike is not a huge number, but is it very encouraging considering the state of the real estate market throughout the nation. In fact, many local real estate companies are already planning for this rebound. The Indianapolis Star recently quoted Donna Kreps, the general sales manager for F.C. Tucker (the city’s largest real estate company) as saying, “she (sic) credits the predicted turnaround to an increase in jobs in the area, more consumer confidence and lower interest rates.” She went on to say, “her (sic) real estate company is planning for an uptick in business – including increasing its recruitment.”

Again, this does not come as a surprise to me at all. I have been saying those things all along. Sure we are experiencing a mild hiccup right now in the market due to the mortgage predicament, but all of the indicators point to the fact that our city is ready to recover quickly. The doom and gloom seen on the national news about the poor real estate market may apply to other states, but Indianapolis has risen above those states. Now is the time to take advantage of some really great opportunities. Don’t let general news articles and reports, or uneducated opinions prevent you from jumping into that real estate investment arena. With desperate sellers and low interest rates, we are still in a buyer’s market. Buy now while the prices are very low, and sell later as the market begins to rise. What is your strategy for success? What goes down, will always find its way back up.

Lets discuss this more on the Investor’s Choice Indy Forum at:
Indianapolis Housing on the Rebound

-B

Posted by Brian Lee Posted in: Indiana Real Estate, Real Estate No Comments » October 2007