Hello all!
First off I wanted to take a moment to wish you all a very happy and healthy Thanksgiving holiday. I hope all of you and your families were able to share the joy and meaning of this truly great American Holiday together.
Secondly, I'd like to proudly announce that me and a nice young couple who I've been working with have been approved by HGTV and Pie Town Productions for our very own episode of House Hunters. We're very excited to have House Hunters coming out to film our search, next weekend actually, as we look for the perfect home in the Chicago area for this wonderful young couple. If all goes to plan, the show will be edited and schedule for air on HGTV later in the Spring or in the early Summer months. I want to, from the bottom of my heart, thank my clients and the producers at HGTV for being so helpful and supportive. I'd also like to thank my colleagues and friends at Saffron Realty Group for all of their help and support.
I'm not going to give anything away here, (it's all going to be a big surprise for all of us actually, including myself and my clients), but I will say that these folks are perfect buyers for an urban suburbanite Realtor like myself. They're new in town, work in the suburbs, but have been living in and really enjoying the city. So their dilemma has been, do they stay in the city and take advantage of all that life can offer a young couple there? Or do they position themselves closer to work and live in the suburbs where their money might go a little further and their respective commutes would be far less? Great questions and a great scenario! I don't even know what they will ultimately choose.
It's one of the truly fun things about being the urban/suburban Realtor. The fact that I know the suburbs and the city, in most cases, equally well, I've really been able to help them hone in on the areas of the city, as well as the areas of the suburbs, that could be good choices for them no matter which way their decision goes.
It's all very exciting!
I also wanted to point out that, at least in some areas I've seen recently, it appears that my hunch about people being out there and buying in these last months of 2007 is proving to be true. I'm actually seeing places that I've been showing reluctant buyers, going under contract and closing quickly. Here in the town where I live, Brookfield Illinois, things are showing signs of a stealth-like recovery. This community has a lot to offer though. Brookfield has culture and science, with one of the largest private zoological parks in the country right here. We also have excellent schools, (in fact Riverside Brookfield High School was recognized in Newsweek magazine two years in a row for academic acheimvent and excellence), reasonable taxes and affordable housing. All of this within 13 miles of Chicago and right on a light rail, (Metra), stop. We actually have 2 stops: One that services the area directly around the zoo, (and allows people from all over to visit the park without driving there), and one right in the downtown area. Brookfield Illinois is really becoming an area to watch. It's truly an urban/suburban community:Big city feel, close to Chicago, but still in the more placid suburban surroundings.
There are a lot of communites, concentrically around the edges of the city of Chicago. If you ever have any questions let me know!
And keep your eyes peeled for our House Hunters episode airing in the Spring or Summer of 2008.
I'll keep you posted on how things go with the show and all other developments in the market here at www.urbansuburbanite.com .
Cheers!
Rick Doty
Friday, November 23, 2007
Monday, November 05, 2007
I hate to say I told you so BUT. . .
No to toot my own horn here, but I think we're starting to see the emergence of an untapped or under utlized, (and oft misunderstood), segment of the real estate market. That segment is the multi-unit investment market.
For several years I've been telling my buyers, particularly those who were considering investing, to look into small multi-unit buildings. There were definitely concerns over these last few years; the biggest one was cash flow. A good number of people were put off by multi-units because they required larger downpayments and, despite these down payments, would barely break even on a yearly basis when all was said and done. I stressed to these buyers that a multi-unit investment property can really boost their portfolio long term and even if they broke even or sustained losses for a period of time, the curve would catch up with them and they profitability would eventually be there. Particularly if we're talking about owner occupied multi-unit residential buildings. It simply translated to having an apartment you live in while renting out the others. Ostensibly, this would be to offset your mortgage costs and any losses or improvements to the the rental units could be written off directly providing the owner with some distinct tax advantages.
And what came of my urgings?
Some people saw the logic and purchased properties, even if they were losing a bit of money in the short term. This is going to end up being a favorable mark in their corner at this point, no doubt, as we are seeing more and more fallout from the subprime mortgage crisis.
Currently in the real estate market, across the board, we are facing several negative factors. We are seeing home prices receeding on the heels of increased supply. That's basic supply and demand: supply goes up, prices go down until demand re-engages or meets up, (or hopefully exceeds), supply. The reason the supply of unsold properties is going up has a lot to do with subprime mortgages. These mortgages weren't just to people who had marginal credit; mortgages were, literally, being written without income verification. This basically meant that if you could prove a certain amount of money moved through your account, you could get a loan for "x" based on the amount of cash going through your account. The logic behind this, (I'm guessing), is that the lender could see cashflow that may or may not, (more than likely would not), show up on more conventional benchmarks such as the review of a buyer's income tax returns. What this did is it flooded the market with people who essentially, by their assertion, claimed to be able to afford homes they clearly could not.
The banks became greedy because these subprime loans were frequently at higher rates of interest because of the "risk." The lenders failed to recognize just how much risk there was.
The second segment of the mortgage market that has caused this monsoon of foreclosures are the ARMs or Option ARMs. These were loans that were hard for most consumers to understand. The assumption on the lender's part was that the actual realities of these loans were properly explained to the buyers and that the buyers understood the additional risk if they did not refinance their loans prior to the rate adjustment that was built into the ARM. An ARM or, Adjustable Rate Mortgage is a mortgage that has an intial fixed rate, (sometimes called a "teaser" rate), that is artificially low for a period of time. After that period of time, the rate adjusts exponentially leaving the owner with payments significantly higher than they had been paying. An Option ARM threw in the "convenience" of allowing a buyer to choose their monthly payment during the fixed period. This, allegedly, allowed the buyer to compensate for cash crunches in some months and play catch up in others. All the while, there were different fees or resettings/re-amortizations of these loans as people paid at different rates from month to month. At the end of it all loomed the big rate adjustment that would blindside the owner and put their monthly payments beyond their monthly means.
The third segment of the mortgage market that contributed to this meltdown are HELOCs or Home Equity Lines of Credit where homeowners were, basically, allowed to use whatever equity they had in their homes as an ATM or, even worse, a revolving line of credit that was designed to be next to impossible to pay down.
The result was debt, upon debt, upon debt!
All of which has lead up to people not being able to afford the homes they worked so hard to purchase. The options are foreclosure in which the bank forcibly takes the home from the former owner in a legal proceeding. The former owner is then responsible for those legal fees and, often, any difference between the price the home sells for and what is owed on the loan.
Smart homeowners who are in trouble are working with their lenders to either keep their homes or to mitigate losses on both sides. If an owner is clearly unable to financially support the home, the bank may negotiate a short sale wherein they agree to allow the home to be purchased for less than is owed on the mortgage.
The bottom line with all of this is that these mortgage issues are far from over and with another wave of mortgages due to adjust in the next 12-18months, there could be more ripples, (or tidal waves), throughout the market. Perhaps the worst part about it is that people who fall into default will cause harm to their credit which will, in turn, hurt their chances of getting another mortgage. And with the banks tightening lending restrictions we could soon see an even bigger glut of unsold homes because the pool of qualified buyers is significantly smaller.
Certainly there will come an answer or help, be it from the banks directly or in the form of governmental assistance. Regardless, the prevailing fear and the tightening of credit standards has created a whole new pool of people. . .renters.
Sam Zell announced a few years ago that he would be building the largest residential rental development in Chicago in many, many years. People thought he was nuts but if we've learned anything about Mr. Zell, he's crazy like a fox. He must have anticipated that there was going to be significant rental demand to take a gamble on investing in high end rentals. And he was right!
So if any of you out there have thought about real estate as an investment, now is the time to strike. With prices sliding back, there should be an excellent opportunity to acquire multi-unit properties that can be easily upgraded and, given the stronger pool of renters, could also provide some cash flow. Even smaller single family homes in good school districts would be ideal investment properties.
And for those of you considering purchasing, particularly if you are looking in the city; now may be the time to look at 2-4 flat multi-unit buildings. If you qualify and have available cash for a down payment, you could command significantly higher rents than in years past.
There are some great investment opportunities in the multi-unit residential market. Please contact me for details or if you have any questions.
Your urban/suburban Realtor.
Rick Doty
For several years I've been telling my buyers, particularly those who were considering investing, to look into small multi-unit buildings. There were definitely concerns over these last few years; the biggest one was cash flow. A good number of people were put off by multi-units because they required larger downpayments and, despite these down payments, would barely break even on a yearly basis when all was said and done. I stressed to these buyers that a multi-unit investment property can really boost their portfolio long term and even if they broke even or sustained losses for a period of time, the curve would catch up with them and they profitability would eventually be there. Particularly if we're talking about owner occupied multi-unit residential buildings. It simply translated to having an apartment you live in while renting out the others. Ostensibly, this would be to offset your mortgage costs and any losses or improvements to the the rental units could be written off directly providing the owner with some distinct tax advantages.
And what came of my urgings?
Some people saw the logic and purchased properties, even if they were losing a bit of money in the short term. This is going to end up being a favorable mark in their corner at this point, no doubt, as we are seeing more and more fallout from the subprime mortgage crisis.
Currently in the real estate market, across the board, we are facing several negative factors. We are seeing home prices receeding on the heels of increased supply. That's basic supply and demand: supply goes up, prices go down until demand re-engages or meets up, (or hopefully exceeds), supply. The reason the supply of unsold properties is going up has a lot to do with subprime mortgages. These mortgages weren't just to people who had marginal credit; mortgages were, literally, being written without income verification. This basically meant that if you could prove a certain amount of money moved through your account, you could get a loan for "x" based on the amount of cash going through your account. The logic behind this, (I'm guessing), is that the lender could see cashflow that may or may not, (more than likely would not), show up on more conventional benchmarks such as the review of a buyer's income tax returns. What this did is it flooded the market with people who essentially, by their assertion, claimed to be able to afford homes they clearly could not.
The banks became greedy because these subprime loans were frequently at higher rates of interest because of the "risk." The lenders failed to recognize just how much risk there was.
The second segment of the mortgage market that has caused this monsoon of foreclosures are the ARMs or Option ARMs. These were loans that were hard for most consumers to understand. The assumption on the lender's part was that the actual realities of these loans were properly explained to the buyers and that the buyers understood the additional risk if they did not refinance their loans prior to the rate adjustment that was built into the ARM. An ARM or, Adjustable Rate Mortgage is a mortgage that has an intial fixed rate, (sometimes called a "teaser" rate), that is artificially low for a period of time. After that period of time, the rate adjusts exponentially leaving the owner with payments significantly higher than they had been paying. An Option ARM threw in the "convenience" of allowing a buyer to choose their monthly payment during the fixed period. This, allegedly, allowed the buyer to compensate for cash crunches in some months and play catch up in others. All the while, there were different fees or resettings/re-amortizations of these loans as people paid at different rates from month to month. At the end of it all loomed the big rate adjustment that would blindside the owner and put their monthly payments beyond their monthly means.
The third segment of the mortgage market that contributed to this meltdown are HELOCs or Home Equity Lines of Credit where homeowners were, basically, allowed to use whatever equity they had in their homes as an ATM or, even worse, a revolving line of credit that was designed to be next to impossible to pay down.
The result was debt, upon debt, upon debt!
All of which has lead up to people not being able to afford the homes they worked so hard to purchase. The options are foreclosure in which the bank forcibly takes the home from the former owner in a legal proceeding. The former owner is then responsible for those legal fees and, often, any difference between the price the home sells for and what is owed on the loan.
Smart homeowners who are in trouble are working with their lenders to either keep their homes or to mitigate losses on both sides. If an owner is clearly unable to financially support the home, the bank may negotiate a short sale wherein they agree to allow the home to be purchased for less than is owed on the mortgage.
The bottom line with all of this is that these mortgage issues are far from over and with another wave of mortgages due to adjust in the next 12-18months, there could be more ripples, (or tidal waves), throughout the market. Perhaps the worst part about it is that people who fall into default will cause harm to their credit which will, in turn, hurt their chances of getting another mortgage. And with the banks tightening lending restrictions we could soon see an even bigger glut of unsold homes because the pool of qualified buyers is significantly smaller.
Certainly there will come an answer or help, be it from the banks directly or in the form of governmental assistance. Regardless, the prevailing fear and the tightening of credit standards has created a whole new pool of people. . .renters.
Sam Zell announced a few years ago that he would be building the largest residential rental development in Chicago in many, many years. People thought he was nuts but if we've learned anything about Mr. Zell, he's crazy like a fox. He must have anticipated that there was going to be significant rental demand to take a gamble on investing in high end rentals. And he was right!
So if any of you out there have thought about real estate as an investment, now is the time to strike. With prices sliding back, there should be an excellent opportunity to acquire multi-unit properties that can be easily upgraded and, given the stronger pool of renters, could also provide some cash flow. Even smaller single family homes in good school districts would be ideal investment properties.
And for those of you considering purchasing, particularly if you are looking in the city; now may be the time to look at 2-4 flat multi-unit buildings. If you qualify and have available cash for a down payment, you could command significantly higher rents than in years past.
There are some great investment opportunities in the multi-unit residential market. Please contact me for details or if you have any questions.
Your urban/suburban Realtor.
Rick Doty
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