Hello members I wanted to pass along this article from the Federal Reserve Bank of New York.

"Flip This House": Investor Speculation and the Housing Bubble"

 The recent financial crisis-the worst in eighty years-had its origins in the enormous increase and subsequent collapse in housing prices during the 2000s. While the housing bubble has been the subject of intense public debate and research, no single answer has emerged to explain why prices rose so fast and fell so precipitously. In this post, we present new findings from our recent New York Fed study that uses unique data to suggest that real estate "investors"-borrowers who use financial leverage in the form of mortgage credit to purchase multiple residential properties-played a previously unrecognized, but very important, role. These investors likely helped push prices up during 2004-06; but when prices turned down in early 2006, they defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle's downward leg. Read complete story below. Paul

http://libertystreeteconomics.newyorkfed.org/2011/12/flip-this-house-investor-speculation-and-the-housing-bubble.html

You might be as surprised as I was when I started doing some
research on Reverse Mortgage defaults. See, I was working with one of the
attorneys I do some consulting with and he was upset that the mortgage holder
of one of his clients that had a reverse mortgage would not do a short sale. I
explained to him that they are backed by the Government so they were going to
get all of their funds so a short sale was not in their best interest

But he said my client was in default on her loan as she has
not paid taxes and insurance in years and was in “technical default”. Here was
the reason not to do a short sale. If the bank agreed to the short sale, they
would lose the funds they had already paid in taxes etc. But if they
foreclosed, the government would cover those losses. So then I googled Reverse
Mortgage defaults and there was no shortage of information available. This is
the first one I saw, and here is the link so you can read all about it.

HUD
Issues Reverse Mortgage Default Guidance

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-001

According
to the Government about 30,000 reverse mortgages (or about 5% of the total) are
in technical default.

Florida
leads the country in terms of the number of defaults, with nearly 8% of the
U.S. total, according to the CredAbility Group, a nonprofit consumer-credit
counseling service based in Atlanta

Reverse-mortgage
defaults generally have more than doubled during the past two years, as
cash-strapped homeowners have fallen behind in paying the insurance, taxes and
other household-upkeep expenses required by their loan terms, said Sue Hunt,
CredAbility’s director of reverse-mortgage counseling.

This
is a major issue for Florida as our property values have plummeted and continue
to drop monthly in most areas. As seniors get older, medical bills continue to
rise and money may be in short supply. What will they do pay property taxes or
buy their prescription or food? This has the potential to be a major issue for
the families of parents that have reverse mortgages. Will family members pay
back taxes and insurance and deferred maintenance on property that is under
water (and may be a home no one wants)? And the final thought: are we willing
to put grandma out on the street for not being able to pay her taxes?

On a personal note, last month had a
few ‘does it really have to be this complicated??’ moments.

It all started when Morgan called to
tell me the movers that we scheduled 3 months in advance to bring her stuff
back to Florida were going to be 3 days late, as the truck wasn’t even in
Georgia. Said it was due to the tornados in Arkansas the week before. Whatever.
Now this was 2 PM on Wednesday and she had to be out of her apartment on
Thursday… So we scramble to get a storage bin, a UHaul, and where are all these
guys she supposedly has classes with who could help with the moving? Well, once
again dad saves the day (with the help of lots of Motrin).

But it gets better. Four days later,
they finally picked up the furniture, but left the bed frame. The people who
manage the storage facility called, and we made arrangements for that. Then the
load was ‘lost’ for 3 days. It was ‘found’ in Tampa, where the driver was
waiting to see if he could get another load, and make the trip to North Port
worth it for him. After all the stuff was delivered, I can only say, you get
what you pay for.

The second thing that happened came
from the city of North Port. They sent me a nasty gram informing me that they
have discovered we have a pool. (We do: when we built the house 16 years ago we
built a pool as well. It’s got a huge pool cage over it, and you can’t exactly
hide it.) Now, in 2011, the city says that I must install a backflow prevention
system in the next 30 days, or I will be fined $100.00/ day. They wait 16 years
to tell me, and now it’s my emergency? Anyway, this device is apparently
crucial to the environment, because if I happen to have a hose in the pool to
add water, and at the very same instant there happens to be a city water supply
shutdown or line breakage, I would personally be responsible for the
contamination of the entire water supply.
Oh, but not to worry, they also gave me the name of a plumber who would
do the work within the 30 day time limit. So it’s done and the powers that be
at the city can sleep well knowing my pool won’t contaminate the city water
supply.

And the final ‘what now??’ moment came
just a couple of days ago when this supply truck driver decided that he really
did see the light turn green (it didn’t) and revved up, right into the back of
my car.  So as I write this my car is in
auto intensive care with 5K worth of damage. God I miss my XM Satellite.  Here’s to a better time next month!  Paul

Here’s the follow
up to last month’s newsletter topic about safety for you and your clients when
touring a home. A total of 43 people responded with their stories when going to
a home. Here are the results:

43 total respondents

5 said they have been help up at gun point (and not one
of them was from Detroit!)

3 people at knife point

4 had the client expose themselves

15 said they were approached in a sexually explicit manner
that made them very uncomfortable

16 said they were just made to feel very uncomfortable
ranging from the client yelling at them or getting a little too close to the
client just starting to act ‘weird’.

As you can
see you need to make sure you put yourself in the safest possible position you
can. And we have an obligation to protect our clients as well. Here are some
precautions that I use when I go to see a house.

I drive the neighborhood first to get
a feeling as to what is going on. This also gives me a chance to see the back
of the subject property in most cases.

I never park in the drive way or in
front of the house. I park across  the street
with my car positioned so the driver side door is easiest for me to get to. And
in a position that it cannot be boxed in.

I also notify 2 people as to where I
am going, how long I think I will be and the name of the people I am meeting. I
text them a couple of times. And if I forget they text me. We work as a team
and when they are out looking at a property they notify me where they will be.

1. I carry a safety tool box in the car. I have
   an air horn, mace, door stops, and bungee cord as well as other tools I may
   need.

I always prop open the front door and
a back door just in case I need to get out in a hurry, and especially if the
house is vacant. I always announce that I am coming into the house. When I’m
with people I always try to stay behind them, not them behind me. I want to see
what they are doing at all times.

I carry mace in my pocket and a knife
just in case I might need them. And in the rare occasion I feel I need it, I
take the 9mm out for a ride. Yes if you’re in this business you should have a
concealed carry permit.

Remember
you’re on your own and need to consider and prepare for things that could go
wrong.

Paul

No one is saying anything about the people that refinanced
their homes and took cash out to buy cars, vacations, and flat screens TV’s pay
off their credit cards etc. Add that to people buying deals and flipping them
and making 50k on them over night because people thought this was going to last
forever. And our politicians made money hand over fist as well. GSE guaranteed
the loans so the tax payers were on the hook and banks played the game and gave
our politicians millions in campaign dollars for the guarantees and to turn the
other cheek. Greed was the biggest factor in the housing market. There is
plenty of blame to pass around. And as for home loan being refinanced or modified
the program was never meant to succeed. It was only red meet for the underwater
homeowners and the special interest groups trying to get them approved “it’s
all about the money” congress gave them money to do the work” ACORN” and other
groups got millions of taxpayer monies. Congress and FDIC agreed to pay banks
for their losses so way agree to a modification of a loan.  Now you add the shadow inventory and the
market keeps dropping. The only way to turn this around is to get the shadow
inventory on the market and let the bottom fall out. Then you can start to get
the market on track. But remember GREED is the reason we are in this mess. And
every one is guilty of it!!!

Most of you
know I am big proponent of direct mail.  I
recently purchased a list of home owners based on criteria that required the
owner to have at least 40% equity in the property. I purchased this list in two
zip codes. The results were great:  I
have been able to purchase two homes and am doing a joint venture with two
more. But now to my issue.

When we go
to look at a house, most of us take our own safety for granted, and the home
owners do as well. We never really think how things could go wrong. I got a
call from a home owner who wanted to sell her house quickly. This was a home
she inherited and it was completely furnished. We agreed to meet at the
property. When the lady arrived I was already there and waiting for her. This
lady is in her mid 60’s and did not know me from Adam, but she let me in to her
house without a second thought, AND without asking for any kind of
identification or ‘code word’.

Now I am an
adorable fat Italian so, of course,  she
was safe, but what if I was a dirt ball? She came alone and did not weight more
than 110 lbs on a good day. The area was not very visible from the road, and
with the wrong person she could have been in real trouble.

We need to
do a better job thinking about security: ours and our clients’. Make sure our
clients understand that they need to think safety first. Take precautions when
agents and other people come to see their house or to do repairs. We need to
think of our own personal safety when we go to see a house – do we really know
whom we are seeing? Just because we talk to a nice old gent on the phone doesn’t
mean that’s who is going to open the door. I believe we need to notify friends
or partners where we’re going, how long we will be there, and remember to call
when we are going to be late or when we’re finished. I would like to hear what
you, the members, think about this issue and what you suggest would be a good
safety tip you would like other members to have.  Just send me an email. I will post some of the ideas our
members have given us. My E-Mail is paul@pauljdacosta.com

Now that it’s April, all our members in the great frozen tundra (aka anywhere North!) are finally seeing grass in their front yards and thinking it’s time to get these properties ready for sale. But before you put that house on the market you better do a little homework.

 All winter long people have been getting daily news flashes on how the market is down, in some areas 20%, since the fourth quarter 2010. They have been told that they could get more for less and all the extras as well. What I am hearing here in Florida from home buyers and Realtors is the home better be perfect and looking good. And that’s the same thing I personally found this winter in dealing with buyers from the north as well from ‘across the pond’. Yes they wanted to see a price reduction but more importantly they wanted the house to look like a palace; everything shiny and new. Fresh paint in and out as well as upgraded landscaping.

One advantage we have in the South is we get people from everywhere for the winter and we learn what people are looking for and can adjust quickly. This winter people were looking for bargains and expected discounts but if they found the right house they purchased. Some cash and some financing but they bought and that’s what’s important.

In our market there are so many homes you’ve got to do something to stand out from the rest. The one thing I’ve noticed is people want you to make it easy for them. I’ve always said it’s smart to have an appraisal and a home inspection done and available as well as all your disclosures. This not only makes it easy for the prospective buyer, but for you as well.

Having an appraisal and inspection on hand shows the buyers you’re serious about selling and you have done a lot of work for them. They can see the appraisal and see exactly why you’re priced as you are. This way you have a negotiating tool in their hands that helps to counter what their Realtor or friends say about the price. A home inspection tells them the house is in tip top shape and any problems have been fixed. Having these two items available helps with the bank appraiser and their inspector. It’s hard for them to devalue and question your numbers when there is another report right in front of them. Now you’re represented even though you’re not there. Keeps people honest. Also if there are issues you can fall back on your reports and have ammunition to protect your price. And I always offer a premium package home warranty with each house.

In one case this winter I had the buyers tell me the reason they choose my house was the inspection reports were already done and they had a good understand of the house before they placed an offer. They were concerned about making an offer then paying for an inspection and not being able to getting all repairs done prior to closing. And they liked the upgraded ceiling fans. See folks, people want everything done for them and if you do it they will pay you for it.

This month’s mastermind meeting was quite different. Most of the times we work on building our business but this time the topic of when to fire employees, vendors or clients came up and it was a heated discussion.

It seems one of our realtors had a client that was an absolute pain in the back side. She called every day wanting to know why her property was not being shown. The agent said the house was priced about 30K too high but the owner would not lower the price, period. She kept telling the agent that if she was any good she could sell it.

The realtor spoke to her broker but the broker was no help and said just deal with it till the listing expires, which was still 3 months away. My first answer was just withdraw the listing and tell the client to go elsewhere. The realtor said that she must have her broker sign the withdrawal and he wouldn’t because he just didn’t see any problem.

So she was beside herself and on the verge of tears because of one client who was consuming all her time and energy.

We suggested she try to find another agent in the office to take over the listing. Perhaps there was someone that might be able to show the client that the property is overpriced. Or she should schedule an appointment with the client and broker to go over the comps. And if the client would not move on the price the broker could then see this and she (realtor)  would have a better argument to just fire the client. Her concern was that the broker would not budge on withdrawing the listing. The whole group felt that if the broker was this dead set against dealing with a client who was not  willing to do what it took to get her house sold she (realtor) may want to consider moving to a new office.

To our surprise the realtor was more willing to move to a new office than to have a meeting with the client and her broker. This tells me there are deeper problems and she has been avoiding them for to long. Ask yourself why you would work for someone or with clients who are not willing to help you grow your business. How could you succeed in helping them get what they need if they were inflexible? Are you having this same type of problem in your business? If so you need to face the truth, maybe fire someone and get back on the right track.

Since the Real Estate crash pundits from all over have been saying that the new norm is less home ownership and more people renting. The financial gurus have also started saying there is no financial gain in the long run to home ownership. See what happens when the markets drop: people’s homes go underwater and foreclosures sky rocket.

I want to take a few lines of this newsletter to rehash some of the issues of our present foreclosure market. 1) A large portion of the homes that are being foreclosed were sold to investors with 100% financing. Why do you think the hardest hit states are Florida, Arizona, Nevada and California? Another large portion consists of people who had no business buying homes. They got 100% financing with no credit and no incentive to make payments. 2) Wall Street wanted to make their fees so all they (seemingly) required was that the people be breathing in order to get a loan. They knew the FED would back them when the BS hit the fan.

All that and here we are today with people, and even the President, saying we need to rethink home ownership and the mortgage tax deduction.

I disagree with the premise that a community is no better off with a high ownership rate than one with a low ownership rate. Common sense will tell anyone that this doesn’t ring true. A community depends on stability of its people to thrive and continue to make the quality of life better for everyone. In a community with high rental housing people always come and go. The job market is always in flux because people keep moving. They have no ties to the community. As an example, the house next to me is a rental and in the last 18 months they have had 4 different tenants.

This causes a domino effect. The local schools have trouble keeping teachers because enrollment changes so much from year to year. Vital services such as police and fire are always in flux because of the unstable population. Rental homes are never taken care of like homes that are owned by the people living in them. Yes, I know that’s not always the case but in general you can tell a rental from a home that is owned.

Now don’t get me wrong, I own rental property so I’m not against it. There will always be some people who don’t want to be or are not meant to be home owners and who need someone else to take on that responsibility. Unfortunately, that was part of the problem with the real estate mess we have now. The people in the house never really took ownership; most looked at it as a rental with benefits.

One of the problems I see in the future is that people who only rent will always be paying someone to have a place to live, even as they get older. If this isn’t possible, they may have to move in with the kids. Not a pleasant situation in many cases. As investors we need to figure out the best way to position ourselves to provide a service, and make a living.

As I’m writing this piece I have the TV news on. The anchorwoman is talking about how the housing market is continuing to decline and more people will be going into foreclosure. And isn’t it a shame that all these people are losing their homes and the equity they thought they were going to have at retirement. (Equity that, by the way, was highly inflated, but that wasn’t part of the conversation) Wouldn’t they be better off renting? Next some economist came on and gave all the reasons why it’s better to rent.(I was trying to write them down; I plan on using some of them the next time I talk to a potential tenant, the guy was pretty convincing!)

I believe as investors we can insert ourselves into this conversation and let people know we’re the experts and can help them with their choices. By doing this you can position yourself to make money with renters and people that want to buy. Now you’re the expert in both areas. You’re meeting the needs of people who want to own, but aren’t sure what they need to buy a home in the current economy. And you’re helping people who don’t want the responsibility of home ownership. One thing I would do if you’re going to buy single family rentals is buy them in areas that have high owner occupancy. These homes will have a higher value and will be more desirable rentals.

I found this list of homeownership by countries on the Internet. As you can see the U.S. is not even close to the top of the list. I got this from a Google search so you can get more info if you like.

Showing latest available data.

Home ownership is still important to the country as a whole. As an investor, though, you need to be in both the rental business and the find, fix, and sell programs. Be pro active and get involved in the market and in the conversation.

 Paul J Da Costa is a Real Estate Consulant.

Can Be Reached at 941-716-2597

E-Mail paul@pauljdacosta.com

www.pauljdacosta.com

Ok, I know what you’re thinking: Yeah, Paul, everyone says that every New Year and they go right on doing the same things they did last year. And I would say you’re right on with that and the key is …they keep doing the same thing year after year and expect a different result. According to Albert Einstein, that’s the definition of Insanity! Sound familiar? You might even say this is you?

I work with numerous Realtors and Investors and the one overriding theme I keep hearing is the economy is so bad and there’s no money and no one is buying anything. The only problem with that is it’s not true. Yes, finding financing is harder but homes are being bought with bank financing. Investors are buying homes with investor loans. And Realtors are selling homes! Just check those facts with the National Association of Realtors.

I know one investor in my REIA group who has bought 20 properties this year, fixed them up and sold every one with bank financing. Other investors have bought homes with bank financing with 30% down. I have bought 2 homes in the last 4 months with bank financing.

As for Realtors, I am working with one husband and wife team on their marketing program. They had sold a home to a couple from Philadelphia and within 3 weeks they sold another home to a friend of the first sale. So we put together a 3 step mailer to people in their area along with an 800 number to call for more information. They sent out info on the area and as I am writing this they have sold 6 more houses.

Now they are doing the same marketing plan to the surrounding areas and are getting great results. Other agents I know are marketing to the Midwest about all the great deals in Southwest Florida.

I am working on a multi-level marketing program with web sites and a multi-step marketing campaign to California telling people how great it is in Florida: great weather, no income tax, and some of the most beautiful beaches anywhere. I’m using the same program ‘selling’ the Atlanta area.

I also have 5 education seminars scheduled for myself this year. If you plan on succeeding you must keep learning. How many education events have you already scheduled? You should plan at least one on marketing.

The way I see it, everyone has 2 choices: do the same thing as last year then sit around and complain that all the dark forces are against them, or decide to change their mindset and business plans. 2011 depends more on you than any outside factors. I encourage you to look at the things that worked well for you in 2010 and do it again, and to always look for new opportunities to succeed.

Change the people you hang around with if they are negative and surround yourself with positive forward thinkers.

I am available for one on one coaching and help with your marketing. And I will be doing a couple of master mind programs again this year. Call me at 941-716-2597 for more information.

Good Luck and make 2011 your best year yet!! 

1181 South Sumter Blvd Suite 301                      

North Port, Florida 34287                                                          

941-716-2597                                                                            

Paul J Da Costa

Is a licensed Realtor in Georgia. He is a Real Estate investor, educator, and national speaker.

Paul is available for select speaking engagements and can be reached at 941-716-2597

www.pauljdacosta.com

paul@pauljdacosta.com