Denver Real Estate Trends

Residential Investment Watch - Denver

Penelope Zeller (Your Castle Real Estate) — Fri, 20 Feb 2009 15:36:51 -0600

Denver ranks high on the list of ‘recovering real estate markets'. Among many American investors, we are servicing Asian, Isreali and Canadian Investors too. Many are buying residential and small commercial properties as buy / holds. If you are new to real estate investing, please read on:

Our unemployment rate is one of the lowest in the Country, and we are not daunted by the recent layoffs. Denver remembers the 12% unemployment of the 1980"s - trust me when I tell you that Denverites KNOW how to get back up on their feet! A 6.5% unemployment rate simply signals that we need to step up our efforts to secure new business and help our current employers grow. (See this website for fantastic statistical information: http://www.metrodenver.org/site-selection/real-estate ) Real estate investments are here, and this attracts the good, the bad and the ugly.

We are diligently working on our transit systems and, in employment attraction, we strive to balance industrial, technology, alternate energy, oil and gas, and medical jobs. Coupled with a strong interest in sustainable and green building, Denver is emerging at the leader in laying a solid foundation for a long-term sustainable community.

The experienced and smart investors are hiring talented Realtors and other qualified professionals to assist them in their purchases. There is also a pool of new and unseasoned buyer - I call them the "Flip this House TV Crowd".

Many who new to RE investing are following the "formulas" touted by Investment Seminars and private (packaged) coaching programs. I occasionally work with (or refer) Investor Buyers who are graduates of some of these training programs. Typically, their interest is in the cheapest deals for fix / flip. This usually translates to the highest risk neighborhoods with a high level of competition.

I want to offer some food for thought to help new residential investors assess where and how to invest for optimum business success - and for the long term sustainability of the target neighborhood. (After all, you may want to invest again in this community in the future!)

Shop where there is less competition - If you are bidding in a high risk area that is a frenzy of other Investor competition, you are competing with any number of Investors who are new and unseasoned to the game. Perhaps they attended the same training you did. The properties are cheap and EVERYONE wants to buy low and sell high. However, recent statistics indicate some of these neighborhoods that experienced high activity last year are now devaluing further. (Take note; not all neighborhoods in Denver are continuing in decline.)

Consider Buy / Hold properties - Foreclosed families cannot buy a home until they have repaired their credit. Most are still employed and need a place to lease - with all their belongings in tow. This could be built-in tenant retention plus the person you sell your rental to in coming years!

Research, research, research! Even seasoned investors forget this tip. Study the history of the neighborhood(s) you are interested in. Whether an f/f or a buy / hold, if you know your market, then you will also have a picture of who your customer will likely be. Understand to whom and how you will market your property. Budget appropriately - NEVER skimp on sales or marketing. If market research and risk assessment are new to you, hire a qualified coach to train you or to perform the assessments for you.

Marketing Plan / Exit Strategies - You have a house or building that you purchased in an investor-active neighborhood. What will you do to set your property apart from the rest of the pack? How will you remodel and advertise your property to sell faster that your competitors? What is your plan if the house does not sell quickly and you have a hard money loan or balloon payment due?

Hire a full service Realtor - For the buy and the listing. In this competitive market, you will need all the good help you can obtain to prepare your remodel, new build or rental to cash flow for you. Your business coach / consultant should be able to teach you how to interview and hire the perfect professional for your needs and geographic area.

Denver's Market: Condo Conversions

Penelope Zeller (Your Castle Real Estate) — Fri, 23 Jan 2009 11:20:37 -0600

A few weeks ago, the first part of this series, "Getting Started", http://activerain.com/blogsview/684869/Investing-in-Real-Estate-Getting-Started-1 gave you an overview of the eight different types of real estate investments. Today we are going to learn more about this category.

What this investment is: A synthesis of the fix and flip and rental operations - purchasing an apartment building in a neighborhood dominated by owner occupants, then converting the building from apartment building to condominium. Often requires renovation of the units to meet the expectations of owner-occupant buyers in that area. Complex and time consuming, but has wonderful tax advantages compares to fix and flips and often has superior returns to all other asset classes. Ideally suited for the sophisticated investor with extensive experience.

Equity needed: Being able to document your income and your assets will be critical. For a commercial loan, your net worth should generally be at least as much as the loan you are seeking. The good news is that the commercial loan usually does not show up on your credit report, so it doesn't count towards the "four investment home limitation" from Fannie / Freddie.

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Importance of experience with contractors: Critical. If you have never done it before, start with an easier "paint and carpet" project to build your skills. The more sophisticated the project, the better your contractor management skills must be to make money. Not surprisingly, the simpler projects have lower profit margins than the complicated projects. Make sure you can take the time to really focus on the project. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. Ideally you will have started with some smaller investment rentals and built property management experience. Now, when you have to finally manage a property manager, it will be easy since you have done the job yourself in the past.

Next week, we'll continue to explore condo conversions in more detail!

Country Club RE Trends: Investing...

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:58:01 -0600

Loan Considerations for Buy and Hold Investors

As far as investment loans, little or no money down loans are impossible. However, lenders do permit the use of Home Equity Lines of Credit or second mortgages from other properties owned by the borrower as a source of down payment. Or, self-employed borrowers are using funds from business lines of credit to fund down payments or renovations (please note: there are asset seasoning guidelines for doing so and the debt incurred by accessing other credit lines must be accounted for against the borrower’s debt-to-income ratio). Thus, we have clients leveraging themselves with other homes they own in order to get in with little or nothing down.
There are exceptions, but practically every lender requires Full Income Documentation on any investment purchase. Full Documentation requires the proof of income through W2s, pay stubs and/or tax returns, as well as proving liquid assets with bank statements. The max LTV is 85% on a non-owner single family property (75% for a 3 - 4 unit); however, most homes are being affected with the ‘declining market’ tag. As such, the maximum loan permitted would be 80% of the purchase price. This is due to mortgage insurance companies refusing to provide MI on investment properties in declining markets. Also, if an investor does not have landlord experience in the past two years, new rules will now not allow any rental income to be included as monthly income. Hence, the buyer would need to qualify with the entire payment going against his/her debt-to-income ratio.
Another point to keep in mind is that Fannie Mae and Freddie Mac are only permitting a maximum of 4 financed properties on a borrower’s credit report. Hence, if a borrower is looking to purchase or refinance a fifth home and already have four loans on their credit, they will face a tremendous challenge in securing financing. This latter rule only affects someone purchasing or refinancing an investment property/second home and NOT an owner occupied purchase.
All this being said, if an investor can put down 20% (or borrow a good chunk of that 20% from other homes they own or lines of credit), is Full Doc, with a 680+ credit score and DTI below 50%, rates are in the upper 6% range on 30yr fixed mortgages with no prepay penalties. With home prices bottoming up in most neighborhoods, coupled with a bullish rental market with increasing rents and low vacancy, investors can easily generate hundreds of dollars of cash flow per month. In fact, many investors choose 15 year fixed mortgages to pay off the loan quickly, yet still cash flow tremendously.

Country Club RE Trends: Short Term Investment Loans

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:57:17 -0600

Loan Considerations for Fix & Flip / Short-Term Investors

Securing conventional financing on a fix & flip or short-term loan is not recommended. Most conventional lenders sell off their mortgages to investors on the secondary market. If the loan is paid off early (before six payments are made), the investor has not recovered their initial investment. The investor will attempt to recover their loss from the lender, who will ultimately come after the loan originator. The loan originator would then be obligated to pay back any premium paid out by the lender. If such activity becomes habitual with the loan officer, the lender can cease doing business with them and their firm.

Furthermore, conventional loans require conventional appraisals. The lender will require that the home is a) habitable in its present state b) in at least ‘average’ condition and c) not in need of any repairs greater than 2% of the purchase price. All three points can be challenging to overcome for investments properties, especially bank owned homes. Consequently, many investors use private money, hard money, home equity lines of credit, cash or specialty investment lenders to avoid failing a conventional appraisal. All of the aforementioned sources of funds can be worthwhile to pursue, but they are meant for short-term loans. Hence, the borrower needs to have a clear exit strategy(ies) to avoid costly extension fees and holding costs. Such loans carry higher interest rates and up-front fees due to their considerable risk. They can be a great route to pursue; however, the investor better be prepared in case the home is not able to sell.

Fix & flip investors should also be cognizant of title seasoning issues. FHA guidelines require that a seller be on title for 90 days before a buyer can purchase the home with an FHA loan. Most flips take longer than 90 days to renovate, market and actually close. But, some deals need limited work and can be turned around quickly. Ultimately, you will want to verify that the new buyer’s lender understands the title guidelines of the lender being used. Furthermore, a flip investor is going to list the remodeled home for significantly higher than what they had paid for it. The lender providing financing to the buyer purchasing the renovated home will scrutinize the new appraisal to ensure the value is justified. Lenders got burned in the past on property flipping schemes and are wary of substantial value increases in short periods of time.

Country Club RE Trends: Jumbo Loans

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:56:24 -0600

Loan Considerations for Jumbo Mortgages

For the Greater Metro Denver area, any loan amount greater than $417,000 is considered a jumbo loan. Fannie Mae and Freddie Mac assign different thresholds for various regions across the country. For instance, $417,000 is not considered a jumbo loan in a high cost city like San Francisco, yet there will still be higher rates for going above $417K.

Due to the size of jumbo loans, they are considered greater risk for lenders, resulting in higher rates. Rates have fluctuated greatly over the past few years on jumbos. As of today, a 30 year fixed could range from 7% - 8%; a full point higher than the prime rate below a loan amount of $417,000. Five year ARMs are popular on jumbo loans, as they typically price out a half point lower than fixed products.

Frequently, a borrower will need to put more money down on a jumbo loan to mitigate the risk. Investors that purchase mortgages are still skeptical of the lending industry, especially higher risk loans, which is why we haven’t been witnessing attractive jumbo rates of late.

To limit the impact on the monthly payment and secure a better rate, many borrowers will take out a first mortgage of $417,000 and then try to find a second mortgage to cover the balance. For example, assume a buyer is purchasing a home for $600,000 and they are able to put 20% down. Instead of taking out one loan at 80% = $480,000, it will likely make sense to split the loan into a $417,000 first mortgage and $63,000 second mortgage. Since the combined loan-to-value is 80%, finding a second mortgage lender should be relatively simple. While the rate on the second will be higher than the first, the blended rate will be significantly lower than the jumbo loan option, resulting in a few hundred dollar savings per month.

Country Club RE Trends: Medium Loans ($200k - $417k)

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:55:06 -0600

Loan Considerations for Loan Amounts Between $200K - $417K

With all the doom and gloom publications that are mostly exaggerated, many potential borrowers believe that home mortgage lending options have dried up. While underwriters and investors are scrutinizing files more closely, attractive rates and terms still exist for owner occupied purchasers seeking a conforming loan limit (under $417,000). FHA and VA can still lend up to 100% LTV and conventional permits up to 97% LTV. There are certain guidelines to meet when going to these high LTVs, but they are not impossible to surmount.

Every home buyer should first ask themselves what payment they feel comfortable in committing to on a monthly basis. Too many buyers over-extended themselves in recent years on homes they simply could not afford, but qualified for on loose lending guidelines. Just because you can qualify for a certain loan amount does not mean that it’s the best decision for you.

Once the comfortable payment has been established, you can back solve for what loan amount will yield an amount close to that payment and search for homes in that price range. You will need to take the amount of down payment into consideration, as well as whether a 30 year, 20 year or 15 year fixed option is best. While adjustable rate mortgages (ARMs) are blamed for much of the current lending turmoil, a sophisticated borrower can determine if an ARM product makes more sense for their situation.

As of today, 30 year fixed rates are hovering right around 6% with no prepayment penalties. But, it is important to keep in mind that if less than a 20% down payment is made on a home, there will be mortgage insurance. Mortgage insurance protects lenders in case of default. Loans above 80% LTV are considered greater risk, thus, carry mortgage insurance. Borrowers can pay mortgage insurance separately per month or it can be built into the rate. Mortgage insurance premiums will vary based on the LTV. In recent years, second mortgages were popular to avoid mortgage insurance. However, they are tougher to secure in this environment in light of the volume of second mortgage lenders that lost millions of dollars in defaulted loans. Since they were in second lien position, their priority in being repaid was subordinate to first lien holders. When homes were foreclosed upon, the second lien holders were typically paid back nothing.

Country Club RE Trends: FHA Tax Credit

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:53:42 -0600

FHA First-Time Buyer Tax Credit

In an effort to boost the sagging real estate market and overall economy, first-time home buyers are being offered a limited time tax credit when purchasing a primary residence.
The highlights of the tax credit are:
•    The tax credit is available for first-time home buyers only.
•    The maximum credit amount is $7,500.
•    The credit is available for homes purchased on or after April 9, 2008 and before
July 1, 2009.
•    Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
•    The tax credit works like an interest-free loan and must be repaid over a 15-year period.

Due to the volume of questions that can be generated with the above, I would recommend clicking on the below link for answers to frequently asked questions: http://www.federalhousingtaxcredit.com/faq.php

Country Club RE Trends: First Time Buyers' Loans

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:52:52 -0600

Loan considerations for a first time buyer

Lending guidelines are changing on a daily basis for every type of loan: conventional, FHA, VA & commercial. Nevertheless, there are still very attractive first-time home buyer options available. If you are or will be a first-time buyer, it is critical to speak with a loan officer before looking at homes. It is a crushing feeling to view a home, picture making it your own and then find out that you cannot qualify to purchase it. A loan officer will pull credit, analyze debt-to-income ratios, review assets and income and determine what you can afford.

Presuming a pre-qualification occurs, the loan officer will then be able to provide an array of loan options. Presently, FHA loans are the predominant loan for first-time home buyers as they offer flexibility with down payment, income and assets. In 2009, FHA loans will require a 3.5% down payment; however, such funds can be a gift from friend or family member. Additionally, pending on where the home is purchased, many cities still offer down payment monies to assist borrowers with little or nothing down. There is even a program that permits someone to purchase a home for as little as $100. Please keep in mind that when a borrower does not make a down payment, their interest rate will likely be higher, since it the loan will have greater perceived risk.

Conventional loans are very comparable to FHA loans in loan terms and fees. They can be more restrictive with down payment options, debt ratios and alternative forms of credit. But, they require less paperwork than FHA loans, which typically means a smoother underwriting process. Furthermore, they do not require an up-front mortgage insurance premium like FHA loans ---- although, their monthly premiums are higher than FHA. FHA, conventional and VA loans are in the low 6% range on 30 year fixed mortgages with no prepayment penalties. These rates, coupled with lower prices make it an opportune time to purchase real estate.

Overall, there are pros and cons to each option. As a first-time buyer start thinking through such factors as: what payment you would be comfortable in making, how much money you can put down, establishing a contingency plan for a job loss, how much you would like saved for unexpected expenses and if you were relocated or forced to sell how would handle the situation?

Country Club RE Trends: Improving Interest Rates

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:51:23 -0600

How can you improve your FICO score?
To improve one’s credit score, it’s critical to understand the factors influencing a credit score. The factors that contribute to a FICO score and the weighted percentages for each are as follows:
•    35% — timeliness of payments
•    30% — the ratio of used debt to allowable debt for consumer credit
•    15% — length of credit history (the more credit history and showing proof of consistent timely payment, the better the score)
•    10% — types of credit used
•    10% — recent credit inquiries and recent new credit
The greatest driver behind a score is making timely payments on all accounts. Scores will be adversely affected for any payment that is 30 days late or more. Being late on a mortgage payment will not only crush one’s score, but will also make qualifying for a new home loan extremely challenging. Collections and past due accounts are obviously bad; however, paying off old collections can actually hurt FICOs in the short term. Many collections report from years past. If that collection is paid off, the account activity date is brought current, which could initially drive down the score.
A common misconception is that having one’s credit pulled is the worst thing you can do to your scores. While it’s wise to keep credit pulls to a minimum, keeping the proportion of monthly debt to allowable debt at low ratios is far more critical in improving one’s score. For example, if a borrower has a credit card with a maximum limit of $15,000 and they owe $14,000, the proportion is almost 100% and the borrower is close to being maxed out. Getting the ratio below 50% would help and below 35% would be optimal. For revolving debt, I recommend borrowers contacting their credit card companies every six months to request increased maximum limits. It is vital not to use this new allowable debt, rather, use it as a means to always keep the proportions in check. Additionally, many borrowers will spread out their credit debt over a few cards to keep the ratios below 35% on all of the cards. Or, if liquid funds are available, it could make sense to pay down the debt.
Another method of improving FICOs is to establish credit history over prolonged periods of time. By doing so, the scoring formula treats longer credit history as a means of proving that a borrower can be extended credit, but do not put themselves into a compromising situation. Many borrowers will keep inactive credit cards open, instead of closing them, in order to increase credit history. Most lenders like to see at least four lines of credit on a report (called tradelines) that are open with at least two years of history. Of these tradelines, it’s ideal to have balance between the types of accounts: mortgages, installment loans, revolving debt. Too much revolving debt, such as credit cards, can adversely impact scores as it can make the borrower to appear to be over-extending themselves.

Country Club RE Trends: Interest Rates

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:50:27 -0600

How does your FICO score impact your interest rate on your loan?

Low credit scores are deemed greater risk for lenders since the likelihood for defaulting on the loan increases. As such, lower FICO scores translate into higher interest rates. Mortgage lenders will group credit scores in a range, usually in 20 or 40 point increments, with interest rates progressively getting better for each higher interval. For example, a borrower with a middle credit score between 660 – 680 will have a higher interest rate (presuming all other variables being equal) compared to one with a 680 – 700 score. Typically, when a borrower has a 750+ credit, they will be able to secure the best possible rate, assuming their income, assets, collateral and down payment are acceptable.

For qualifying, underwriters use the middle credit score pulled from the three bureaus versus an average of the three. For instance, a borrower with scores of 702, 717 and 749 would have a 717 FICO compared to an average score of 722. If there is more than one borrower on the loan, the lender will use the lowest middle score of all borrowers versus the middle score of the primary wage earner, like many lenders used to do. Often times, a husband and wife will have drastically different scores. When that occurs, it is best to qualify off of only the person with the good credit. However, if a spouse or partner is left off of the loan (they can still go on title though), none of their income or assets can be used to help qualify. Therefore, the sole qualifying person must have ample liquid assets, as well as gross monthly income to stay below the lender’s allowable debt-to-income ratio.

Country Club RE Trends: FICO Scores

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:49:29 -0600

What is a FICO score?
FICO stands for Fair Isaac Corporation, a company that created the most used credit scoring model in the United States. An individual’s credit score is calculated through a statistical algorithm and is used as a factor in determining the likelihood of a borrower defaulting on a loan. FICO scores are generally used for obtaining mortgages, car loans or consumer credit. The scores are provided from the three major credit reporting agencies: Equifax, Experian and Transunion. Typically, there is a variance amongst the scores since each agency has a slightly different scoring formula. FICO scores range from 300 – 850, with higher scores being considered less risky. For mortgage lending purposes, any score over a 680 is considered good and above a 750 is considered excellent. Any score below 580 is considered great risk and will be challenging for such a borrower to secure financing.
The factors that contribute to a FICO score and the weighted percentages for each are as follows:
•    35% — timeliness of payments (adverse dings to scores for any payment greater than 30 days later, collections, past due accounts)
•    30% — the ratio of used debt to allowable debt for consumer credit (an individual that maxes out their credit cards will see a decrease in their score)
•    15% — length of credit history (the more credit history and showing proof of consistent timely payment, the better the score)
•    10% — types of credit used (installment, revolving, mortgage)
•    10% — recent credit inquiries and recent new credit (taking out a fair amount of new credit with multiple credit inquires can adversely impact a score)

Country Club RE Trends: Market Update for Q4 2008

Penelope Zeller (Your Castle Real Estate) — Mon, 22 Dec 2008 11:48:24 -0600

TOPIC: Improving conditions in Denver’s market

There are some signs of strengthening in our Denver market. The metro area's inventory of available resale housing decreased 20% to 23,120 units in October from October 2007. Some of this reduced inventory is attributed to homeowners taking their properties off the market in frustration because their property is not selling, but lower inventory implies a strengthening market. Remember, the Denver area had housing inventory of 31,989 units in July 2006. Home sales rose 14% to 4,265 in September compared to the same month last year. This is due almost entirely to the lower-end of the market (under $180K) selling like hotcakes. October's median selling price for single-family homes decreased 12% to $206,000 from the same month of '07, and was down 4.7% from September's median of $216,150. Median selling price for single-family homes dropped 10.5% to $222,000 through October, from $248,000 through October '07.Prices are still falling, but at a slowing pace. This trend should continue into 2009 when it is expected to bottom out and slowly climb back. Hang on, it's gonna continue to be a wild ride!

Sewer Scope ARE Important

Penelope Zeller (Your Castle Real Estate) — Thu, 20 Nov 2008 08:39:02 -0600

A LOT of agents don't advise their clients to get sewer scopes when they purchase a property. This is a major mistake. A broken sewer can cost between $3,000 - $10,000 dollars to repair and it only costs $99 ($99Rooter - others are more expensive) to have a tech put a camera down the sewer pipe and videotape the sewer all the way to the mainline. This will tell you and the-buyer what the condition of the sewer is. So let's see, we pay to have the furnace inspected but a new furnace will only be about $2,000. We pay to have the roof inspected but that's probably a $4,000 job. So why don't we always inspect the sewer? One reason is because, let's face it, Realtors want closings. Many figure if they keep their mouth shut and don't go out of their way to recommend a sewer scope that's one less chance the deal will fall through. Inexcusable, but all too commonplace. Don't be a chump - get a sewer scope.

Denver Rental Condo or Rental Home

Penelope Zeller (Your Castle Real Estate) — Thu, 20 Nov 2008 08:36:42 -0600

What this investment is: Purchase of a residential property to be rented out to tenants, usually on a 6-12 month lease term. This is how most new landlords get started. You can hire out all of the property management functions, but in many cases you will do many of them on your own. There are smaller down payment requirements than for larger rental buildings. The purchase process and financing process is very similar to what you experienced buying the home you live in now. It's a great way for beginners to get started.

Equity needed: Currently 20% - 25% Downpayment. In some cases you might be able to do it with 10% down, but expect the second mortgage to be at a higher rate. While Freddie / Fannie lenders might only let you have four loans, smaller local lenders will let you have more than that if you have strong credit. Contact me and I'll put you in touch with the right people.

Importance of credit: Very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

The next few blog articles explore related topics, such as rentals, fix and flips, and new construction. Next week, we'll continue to explore rental condos / homes in more detail!

Small (2-5) Apt. Building Investors

Penelope Zeller (Your Castle Real Estate) — Thu, 20 Nov 2008 08:35:18 -0600

What this investment is: Purchase of duplex, triplex or quadplex to be rented to tenants, usually for 6-12 month terms. Usually what the rental home / condo landlords graduate to. In most markets they cost a little more than a rental home, but are much more likely to cash flow on the average month. Less cash flow risk; if one unit is empty you have other tenants that still help you with the mortgage payment so it doesn't all come out of your pocket. Many owners will start to delegate some of the property management tasks to an on-site assistant (typically the most responsible tenant), such as yard maintenance and showing empty units. The financing process is only slightly more involved than a residential loan. Relatively small down payment requirements make it affordable. The purchase process is also very similar to purchasing a home. It's a good way for beginners to get started.

Equity needed: 20% - 30% down would be typical.

Importance of credit: Very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Important of experience with property managers: Not important; the majority of our clients manage their own rentals when they get started. If you get a property manager, you'll be able to figure it out easily on this small of a scale. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Large Apt. Building Investors

Penelope Zeller (Your Castle Real Estate) — Thu, 20 Nov 2008 08:33:55 -0600

What this investment is: Still targeting tenants for 6-12 months at a time, buildings with more than five units are considered "commercial" property. The loans are more difficult to qualify for, and usually a larger down payment is needed. Uncommon for the new investor; this is usually what landlords with several years of experience "trade up" to. Cash flows on larger buildings are more stable than for smaller buildings, and the economies of scale make it practical (and desirable) to hire a property manager to take over most the work for you. This takes reduces the hassle factor of the landlord process.

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Importance of experience with contractors: Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence. We run classes on how to do this from time to time. Go to http://www.yourcastle.org/events.cfm to see when the next session is.

Next week, we'll continue to explore large apartment buildings in more detail!

Denver's Market: Lease Options

Penelope Zeller (Your Castle Real Estate) — Thu, 20 Nov 2008 08:20:55 -0600

What this investment is: A lease option (L/O) is Acquiring control of a property (though not necessarily ownership), then leasing the property to a tenant. The lease is bundled with an option, so the tenant can (but does not have to) purchase the property for a given price within a given time frame. Again you are seeking a tenant for a property, but usually for a slightly longer term (12-18 months) and frequently (though not always) with the goal that the tenant purchase the property from you at the end of the lease. If you purchase the property, then it's an easier process; if you find a highly motivated seller to let you re-lease the property to another tenant, it can be a lot of work to set up. However, the re-lease method doesn't require any cash out of pocket and does not rely on your credit score, so it is appealing to many investors. Great for beginners with the right skills and attitude.

Equity needed: If you get seller financing, potentially just a few thousand dollars for your operating account. If you purchase the property, 10% down (best case); more likely 20% down.

Importance of credit: If you leverage seller carry, not important at all. If you purchase the property, credit is important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical.

Denver's Market: Flix and Flip

Penelope Zeller (Your Castle Real Estate) — Thu, 20 Nov 2008 08:19:44 -0600

What this investment is: Purchasing a home that needs work. The scope can range from the basic "paint and carpet" to extensive overhauls to scraping a decrepit property and completely starting over. Usually does not involve tenants, and the objective is to get in and out of the property as quickly as possible. Great for beginners with the right skill sets or the willingness to learn.

Equity needed: With hard money loans (defined in next paragraph), potentially 0% and they'll finance the construction costs, too. Expect a LOT of strings to be attached. A small local lender might give you 75% of the purchase price and the renovation budget, and the terms will be a lot more pleasant than the hard money option. Or you can do 20% down and get a convention, non-owner occupied loan and pay for the renovation with cash or your Home Depot credit card.

Importance of credit: If you get a hard money loan, your credit will not matter as much. These are harder to find than they were last year. If you get a traditional loan, it'll be a non-owner occupant loan, credit score will be very important. A 720 FICO score would help a lot. Being able to document your income and your assets will be critical. A hard money lender will lend you money based on the value of the property you are purchasing. If the property is worth $200,000 and you are able to purchase it for $150,000, a Hard Money Lender will probably give you a loan regardless of your down payment or credit score. However, the fees and the interest rate will be much less desirable than more conventional forms of financing. Hard Money Lenders can usually close very quickly, and from the Sellers' point of view, you are purchasing with Cash.

Important of experience with property managers: Not important.

Next week, we'll continue to explore fix and flips in more detail!

What Scrapes, Pops, and New Construction Entails

Penelope Zeller (Your Castle Real Estate) — Thu, 20 Nov 2008 08:17:21 -0600

What this investment is: Purchasing a small home in an expensive neighborhood that may or may not need work. The home is bulldozed and a new home or duplex is put on the lot. Alternatively, the existing home is renovated and more square footage is added on. A pop-top is adding a second story to an existing home to add more square footage (commonly, a master bedroom suite).

Importance of credit: Essential. A 720 FICO is a must. A 740 would be better.

Important of experience with property managers: Generally not important for this type of investment.

Next week, we'll continue to explore scrapes, pops and new construction in more detail!

Is Denver seeing improvement?

Penelope Zeller (Your Castle Real Estate) — Thu, 20 Nov 2008 08:15:51 -0600

There are some signs of strengthening in our Denver market. The metro area's inventory of available resale housing decreased 20% to 23,120 units in October from October 2007. Some of this reduced inventory is attributed to homeowners taking their properties off the market in frustration because their property is not selling, but lower inventory implies a strengthening market. Remember, the Denver area had housing inventory of 31,989 units in July 2006. Home sales rose 14% to 4,265 in September compared to the same month last year. This is due almost entirely to the lower-end of the market (under $180K) selling like hotcakes. October's median selling price for single-family homes decreased 12% to $206,000 from the same month of '07, and was down 4.7% from September's median of $216,150. Median selling price for single-family homes dropped 10.5% to $222,000 through October, from $248,000 through October '07.Prices are still falling, but at a slowing pace. This trend should continue into 2009 when it is expected to bottom out and slowly climb back. Hang on, it's gonna continue to be a wild ride!

Cherry Creek Country Club, CO Fourth Quarter 2007 Home Price Performance

Penelope Zeller (Your Castle Real Estate) — Mon, 27 Oct 2008 11:06:35 -0500

Recap of Denver Fourth Quarter 2007 Home Price Performance
The average home price in Metro Denver increased +2% in the full year 2005 to the full year 2006, from $309,000 to $317,000.

Comparing 2006 to 2007, the average home price across the metro dropped 2%, from $311,000. The average price of a foreclosure or short sale dropped in that time period -3% to $188,000. The average price of a non-distress sale increased 5% to $370,000. Sales volume over the last twelve months is off -4% for DSF/ASF. Foreclosure and short sale volume is up +31%; non-distress seller volume is off 20%. If you handle a lot of listing and the market seems slow, this is likely the reason why.
Some areas did better than others. The attached chart shows different neighborhoods in Denver County (email me for a larger version). Each region has the neighborhood's name and the percentage of sales in the last twelve months that were either short sales or bank-owned properties. The second line has the price change the twelve months from 2006 vs. 2007. Next, you'll see the average home price in the last twelve months and the number of homes that were sold.

There had to be at least fifteen sales in the last year for an area to be included. The numbers are more reliable in areas where there were more sales. For example, Wash Park West had 196 sales -the numbers are likely to be very reliable. In Lincoln Park, with only 41 sales, the numbers are more likely directional.

Less expensive areas generally didn't do as well. For example, Westwood (average home price $100K) saw a 20% drop in prices. More expensive areas generally did better. For example, Hilltop (average home price $961,000) was up 15%. 81% of the sales in the Westwood area were related to foreclosures, where in Hilltop, only 11% were foreclosures (up from 9% last quarter). There's a pretty strong relationship; where home prices are less expensive, there is more of a foreclosure problem, and that tends to drag down the prices. Another factor driving home price appreciation in some upscale neighborhoods are re-sales of recently scraped properties, where a small, run down $300,000 home is replaced with a new home at $1,000,000.
Source: Your Castle Real Estate analysis, MLS data

(c) Copyright Your Castle Real Estate, 2007

Recap of Denver Fourth Quarter 2007 Home Price Performance

The average home price in Metro Denver increased +2% in the full year 2005 to the full year 2006, from $309,000 to $317,000.

Comparing 2006 to 2007, the average home price across the metro dropped 2%, from $311,000. The average price of a foreclosure or short sale dropped in that time period -3% to $188,000. The average price of a non-distress sale increased 5% to $370,000. Sales volume over the last twelve months is off -4% for DSF/ASF. Foreclosure and short sale volume is up +31%; non-distress seller volume is off 20%. If you handle a lot of listing and the market seems slow, this is likely the reason why.
Some areas did better than others. The attached chart shows different neighborhoods in Denver County (email me for a larger version). Each region has the neighborhood's name and the percentage of sales in the last twelve months that were either short sales or bank-owned properties. The second line has the price change the twelve months from 2006 vs. 2007. Next, you'll see the average home price in the last twelve months and the number of homes that were sold.

There had to be at least fifteen sales in the last year for an area to be included. The numbers are more reliable in areas where there were more sales. For example, Wash Park West had 196 sales -the numbers are likely to be very reliable. In Lincoln Park, with only 41 sales, the numbers are more likely directional.

Less expensive areas generally didn't do as well. For example, Westwood (average home price $100K) saw a 20% drop in prices. More expensive areas generally did better. For example, Hilltop (average home price $961,000) was up 15%. 81% of the sales in the Westwood area were related to foreclosures, where in Hilltop, only 11% were foreclosures (up from 9% last quarter). There's a pretty strong relationship; where home prices are less expensive, there is more of a foreclosure problem, and that tends to drag down the prices. Another factor driving home price appreciation in some upscale neighborhoods are re-sales of recently scraped properties, where a small, run down $300,000 home is replaced with a new home at $1,000,000.
Source: Your Castle Real Estate analysis, MLS data